Directors and Officers Liability Insurance

We offer directors and officers liability insurance, commonly referred to as D&O insurance, to private and public organizations, including all types of financial institutions, trusts, and partnerships. We work with most major insurance companies and can offer D&O insurance to organizations in all industries.

Directors and officers insurance provides protection to an organization's officers, employees, and board of directors against allegations of wrongful acts committed in the course of performing their duties, such as an error, omission, misstatement, misleading statement, breach of duty or neglect. D&O insurance also provides protection to the organization itself. D&O claims are typically not covered by other types of insurance, such as general liability or professional liability. Most D&O lawsuits are filed by stockholders, employees, customers, regulators, or competitors.

Why should directors and officers get D&O insurance?

D&O insurance is closely related to the issue of corporate governance, which is the set of processes, practices and rules by which an organization is directed and controlled. Corporate governance involves balancing the interests of the various parties who have a stake in the organization.

The board of directors is a body of elected or appointed individuals who are tasked with setting the strategic direction of the organization, monitoring the organization's performance, and appointing the CEO and other officers, among others. The board of directors does not run the day-to-day operations which is the duty of the organization's officers.

The organization's officers manage the organization and oversee all activities. They are directly responsible for the success or failure of an organization. The CEO generally reports directly to the board of directors. There is often some overlap between the board and officers as some officers may also serve on the board of directors, such as the CEO serving as chairman of the board.

While many organizations provide for the indemnification of its directors and officers in the face of a lawsuit, there are instances where directors and officers might personally have to provide for their own defense and might have to pay damages out of their own assets. Such instances may arise when an organization is prohibited from indemnifying a director or officer or when an organization becomes unable to indemnify them because it does not have sufficient financial resources or is in bankruptcy.

It is therefore important for directors and officers to be protected by D&O insurance with adequate limits and coverage.

What basic coverages does D&O insurance provide?

The three basic coverages available under D&O insurance policies are Side A, Side B, and Side C. The three coverages can be purchased in a single policy. Side A can also be purchased by itself in a single policy which usually becomes excess to any underlying D&O policy.

Side A provides coverage to directors and officers for losses which they are personally liable to pay and which are not indemnified by the organization. Side A coverage can also be purchased under a separate policy which becomes excess to the primary D&O policy. Side A policies provide coverage in cases where the primary D&O insurance policy cannot provide full coverage to the directors and officers because the policy limits have been exhausted or for some other legal or regulatory reason. Since Side A policies are designed to solely cover directors and officers, and not the organization, the policy cannot be used to pay creditors of the organization therefore leaving the policy limits intact. Side A policies often include difference in conditions (DIC) coverage which tends to be broader and have fewer exclusions than the underlying policy.

Side B is the complement of Side A and provides coverage to the organization for losses which directors and officers become liable to pay but which are indemnified by the organization.

Side C provides coverage to the organization for claims filed against the organization. For public companies, the coverage provided under Side C is usually limited to securities claims.

There is no standard D&O insurance policy and the coverage, exclusions, conditions, and limitations vary by insurance company. Applicants for coverage should therefore review the entire policy before committing to a specific insurance company.

Which D&O insurance policy is responsible for a claim?

D&O insurance is written on a claims made policy form. This means that the policy that is in force at the time the claim is made against the insured handles the claim, not the policy that was in force when the act which gave rise to the claim occurred. D&O insurance policies may however include time limitations such as the prior and pending proceeding date and the continuity date which determine how far back in time a policy's coverage applies.

A prior and pending proceeding date usually means that no coverage will be provided for any claim which is based upon or arising out of any prior or pending demand, suit, or other proceeding as of, or prior to, the prior or pending proceeding date.

A continuity date usually means that no coverage will be provided for any claim which is based on any fact, circumstance, situation, or event that is or reasonably would be regarded as the basis for a claim for which any executive officer had knowledge prior to the continuity date.

What is an extended reporting period?

To the extent that a D&O insurance policy is not renewed or is canceled by the insured, an extended reporting period can be purchased to provide "tail" coverage for a certain number of years. The extended reporting period provides coverage for claims based on wrongful acts incurred during and prior to the expiring policy, but that are reported after the expiration or cancellation date of the policy. Such claims are still subject to any prior and pending proceeding and/or continuity date.

What are some common exclusions in D&O insurance policies?

D&O insurance is not meant to cover every type of lawsuit that directors and officers may face. Some common exclusions include the following:

Since the exclusions contained in a D&O insurance policy vary by insurance company, it is highly advised that the full policy be reviewed before coverage is bound.

We offer D&O insurance in the following states: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Vermont, Washington, Wisconsin, Wyoming.