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Introduction to Directors and Officers Liability

April 18, 2012

Directors and officers liability insurance (D&O) provides protection in the event of any actual or alleged error, misstatement, omission, misleading statement, or breach of duty.  In base terms, this coverage provides personal financial protection for past, present and future directors and officers of an organization for their actions related to the company.

Unlike workers’ compensation or auto claims that are limited in type and scope, D&O claims can come from a myriad of sources.  As an example:

 •  Investors can allege mismanagement of the organization
 •  Members of a group practice can allege collusion or conflict of interest
 •  Customers or clients can allege debt collector harassment
 •  Competitors can allege restraint of trade or deceptive trade practices

The types of D&O claims are endless and most of these are not covered under an errors and omissions policy — the difference is errors and omissions is a failure to perform/provide goods and services rather than performance of duties.

All D&O polices pay for the defense of claims including legal fees and financial damages or settlements.  There are usually four specific coverage parts:

  1. Insurance provided directly to the directors and officers.
  2. Insurance for the organization and its obligation to indemnify directors and officers.
  3. Insurance for the organization when the organization is named in an action.
  4. Insurance to the organization and directors and officers for employment related claims.

Non-profit organizations should consider the benefits afforded by directors and officers liability insurance. This is especially important for volunteer board members — your personal assets could be on the line for mismanagement or actions of the organization.

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