D&O insurance, or directors and officers insurance, remains a mystery to many in the business world, but breaking it down into individual parts helps clarify its purpose.
What is it?
Directors and officers insurance is exactly what it sounds like: liability insurance which pays out to the directors and officers of a given company. D&O insurance reimburses the directors and officers — or occasionally the company itself — whenever they are responsible for losses brought about by their own actions. D&O insurance can also cover costs of defensive actions, such as an investigation or lawsuit.
What does it cover?
D&O insurance coverages are multifaceted, and they often will answer for the gaps or loopholes in basic coverage; however, D&O coverage is typically divided into three primary categories:
- Side-A: covers the directors and officers of a company or organization when they are not reimbursed (due to the company’s inability to do so or decided not to do so)
- Side-B: covers the company or organization when it reimburses its directors and/or officers
- Side-C: covers the company or organization itself when facing security claims
What types of claims are involved?
It is common for public companies to see claims in the form of lawsuits due to financial hardship or inconsistencies. Smaller or private companies may see claims arising from third parties or customers disappointed in the way the organization handles its employees and business. Other potential claims include those due to conflicts of interest and those due to personal/professional financial crossover.
Though D&O insurance coverage may seem complex, it serves the crucial purpose of allowing all businesses and organizations to operate as safely and efficiently as possible.