What is Directors Insurance?
Directors insurance, also known as Directors and Officers (D&O) liability insurance, is coverage to protect individuals from personal losses in the event that they are sued by employees, vendors, customers, investors, or other parties for actual or alleged wrongdoings.
What does the directors insurance cover?
Providing financial protection for corporate directors and officers against legal claims, D&O insurance covers:
- Legal defense costs: Includes attorney fees, court expenses, and legal defense costs during lawsuits.
- Breach of fiduciary duty: Includes protection against claims on mismanaged company assets, the director acted against shareholders’ interests, or failed to act responsibly.
- Mismanagement and negligence claims: Covers allegations of financial mismanagement, poor decision-making, and regulatory non-compliance.
- Employment practices liability: Covers claims related to workplace misconduct, discrimination, harassment, and unjust termination.
- Regulatory investigations: Provides coverage of the legal expenses on investigations made by regulatory bodies for compliance violations.
- Shareholder lawsuits: Covers claims made by shareholders for company losses due to failed leadership decisions.
- Settlements and judgments: Covers pay for settlements of financial judgments granted to claimants in covered lawsuits.
What does the directors insurance NOT cover?
While the D&O insurance offers broad and essential protection for corporate leaders, specific exclusions are not covered by the policy, including:
- Fraud and criminal acts: If an officer is found guilty of embezzlement, fraud, or any criminal offense the insurance will not cover legal costs.
- Intentional misconduct: A deliberate unethical act or decision will not be covered by the policy.
- Illegal personal profits: Unlawfully obtained personal gains, such as insider trades, are excluded.
- Prior and pending litigation: Lawsuits already filed before the policy started will also not be covered.
- Bodily injury or property damage: Physical injuries or property damages are not insured with the D&O policy, but are covered by general liability insurance like workers’ compensation.
- Contractual liabilities: Lawsuits ensued from failure to meet contract obligations typically excluded in the directors insurance.
- Cybersecurity breaches: D&O policies do not cover cybercrimes as a cyber liability insurance policy is needed for extensive investigation and settlements.
Directors insurance policies are designed to protect corporate leadership decisions, not criminal acts, contract disputes, or operational failures. Companies will need additional coverage to fill such gaps.
Examples of D&O Insurance Providers
Known for their expertise and comprehensive coverage, below is the list of some of the top providers globally and in the US:
- AIG: The American International Group, AIG, is a global insurance giant providing a wide range of D&O services, including specialized insurance policies for large corporations and SMEs.
- Allianz: This major player in the insurance landscape offers D&O solutions for all company sizes, with strong expertise in risk management and tailored coverage.
- Chubb: This major provider is well-known for high-quality policies, particularly for publicly traded companies. They have a strong reputation for finance and customer service.
- Travelers: A well-established US insurer known for its comprehensive suite of management liability services, including D&O insurance for various industries.
- Liberty Mutual: Recognized for its flexible policy options, Liberty Mutual offers broad coverage definitions, especially for nonprofit organizations.
When looking for the most suitable D&O insurance provider, it is recommended to compare coverage options from various insurers and assess their strengths and weaknesses. Other factors to consider are industry expertise, financial strength, pricing, reputation, and customer service.