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What Is Directors And Officers (D&O) Coverage?

By Compuquotes Team on March 27th, 2008

Business Insurance

Directors and Officers coverage (D&O) is insurance for the directors and officers of businesses, corporations and other entities against a legal judgment and the related expenses that result from an allegation of a wrongful act committed in their individual capacity with the company as a director or officer.

The most important aspect of Directors and Officers coverage is the individual capacity - each of the directors and officers are responsible for the management of their organization. Due to this, they are required to act with due diligence in all of their responsibilities and if they are not, they can be held personally liable if they are the cause of a loss to the shareholders or the business.

Directors and Officers coverage is provided on a claims-made basis and Directors and Officers coverage is divided into two parts - direct coverage to the Directors and Officers and corporate reimbursement. The direct coverage is used when the business itself can not reimburse the directors and officers.

The concept of Directors and Officers coverage is very complicated and the coverage can change depending on the type of business insured. Volunteers are often covered under Directors and Officers coverage policies for non-profits, but not under other types of policies. Some Directors and Officers policies include employment practices coverage (EPL) and entity coverage.

In most cases, Directors and Officers coverage does not protect the Directors and Officers against professional liability claims, it is important that the business purchase professional liability insurance to cover against these instances. However, there are some specialized Directors and Officers policies that are scripted to include professional liability.

For most businesses, having broad Directors and Officers coverage is not a good idea. Employment Practices Coverage (EPL) can be purchased for a smaller business for a low price with much lower deductibles than the Directors and Officers coverage. EPL claims can erode your Directors and Officers coverage limits, so it's usually in your best interest to purchase a separate Employment Practices Coverage policy and leave your Directors and Officers coverage to only work on the Directors and Officers claims.

There have been some very public cases of accusations against Directors and Officers of some major companies in the media; however it's important to note that many small businesses likely do not need Directors and Officers coverage.

The best thing to do, if you are unsure of whether or not you require Directors and Officers coverage is to talk to your business insurance agent and discuss all aspects of your business and your situation. Your business insurance agent will be able to help you decide if your business requires Directors and Officers coverage or not. For many companies, the answer will likely be no, but it's best to know before you have a potential claim. No business wants to spend money on a product they don't need, which is why it's best that you contact an insurance agent to discuss your businesses insurance needs. Directors and Officers insurance is a specialized policy that most businesses do not need - but some businesses do, and if you do not have it, you could find yourself wishing you'd taken a few minutes to discuss this with your agent.

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