Directors and Officers Liability Insurance (often called D&O) is liability coverage payable to the directors and officers of a company or organization (such as a board of directors for an association). It covers certain damages, settlement costs, or advancement of defense costs if any insureds have legal action (criminal, civil, or administrative) brought against them. It could be for alleged negligence or wrongful acts in their capacity as directors and officers.
Such coverage can extend to defense costs arising out of criminal and regulatory investigations/trials, as well. In fact, typically, civil and criminal actions are brought against directors/officers at the same time. It has become closely associated with broader management liability insurance. That insurance covers liabilities of the corporation, as well as the personal liabilities for the directors and officers of the corporation.
It is important to understand that each Directors & Officers policy varies in scope depending on the business or organization. For example, executives and a board of directors for a corporation would have different exposures than a group of board members of a community association. Because of that, different clauses or “sides” are used for this kind of policy.
The Sides
Insuring Clause 1 (Side-A) provides coverage to directors and officers when indemnified personally as individuals, typically as a result of state law or financial capability of the corporation. Please note that it may not cover situations, in which the corporation simply refuses to pay the legal defense/loss of a director or officer, or if a bankruptcy court issues an order preventing indemnification by the corporation/insurance carrier for such situations.
Insuring Clause 2 (Side-B) provides coverage directly for the corporation or organization, when it indemnifies the directors and officers (corporate reimbursement).
Insuring Clause 3 (Side-C) provides coverage to the corporation for securities claims brought against it. “Securities claims-only” coverage applies to publicly traded companies and large private companies; small private companies may be able to obtain broader “entity” coverage.
