Understanding the protection provided by D&O insurance

It goes without saying that for any business, the primary objective is always improving the bottom line, meaning its net earnings. While this, of course, can be accomplished by simultaneously growing revenue and cutting costs, it can also be realized to a certain extent through defensive measures like securing the necessary business insurance policies.

While these business insurance policies safeguard the enterprise itself, it’s important to understand that this coverage does not extend to individual company officers, meaning they may be left personally exposed to financial losses stemming from a lawsuit.

Indeed, it’s because of this reality that many businesses elect to purchase what is known as directors and officers liability insurance, otherwise known as D&O insurance.

D&O insurance: The basics

As implied by the name, D&O insurance is designed to insulate corporate officers and/or those serving on the board of directors from liability for claims made against them while serving in either capacity.

The standard D&O policy — which can be secured by privately held firms, for-profit businesses, non-profit organizations and even educational institutions — is comprised of various elements known as “Sides.”

D&O policy Sides may include:

• Side A: If the company cannot indemnify the directors and officers, this coverage provides them with reimbursement.
• Side B: If the company indemnifies the directors and officers, this coverage provides it with reimbursement.
• Side C: If the insured organization and the directors/officers are named as co-defendants in a securities lawsuit, this coverage is designed to eliminate coverage allocation disputes.

We’ll continue our examination of D&O insurance in our next post, including scenarios it is designed to cover — and those it is not designed to cover.

In the meantime, if you are a business professional denied coverage under a D&O policy, consider speaking with a skilled legal professional as soon as possible to learn more about your rights and your options. 

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