What is D&O insurance for directors and officers?
As a director, officer or board member, your decisions can have significant consequences. Even a careful decision or alleged error can lead to a personal lawsuit.
Directors and officers insurance (D&O) is intended to address certain claims related to decisions made in your role. A claim may involve a management decision, an omission or an alleged conflict of interest.
Who can sue a director or officer? When can your personal liability be challenged? What role can D&O insurance play? This article explains the risks connected with your role and how this coverage may apply.
Can a director or officer be sued personally?
Yes. Even if your business is a separate legal entity, you may be personally named in a lawsuit involving decisions made in your role.
A lawsuit can arise without wrongful intent. A management decision, omission or alleged conflict of interest may result in legal action.
This risk is not limited to large businesses. Directors and officers of small and medium-sized businesses and non-profit organizations may also face legal action.
Who can sue a director or officer?
A lawsuit can come from within or outside the organization. The following people or organizations could bring a claim against you:
- Shareholders or partners: They may challenge a financial decision, management transparency or an alleged conflict of interest.
- Employees or former employees: They may dispute employment decisions or practices, such as a dismissal.
- External parties: A creditor, regulator, client or supplier may also bring a claim.
Can you be sued after leaving your position?
Yes. A claim may involve a decision made while you held the position, even after you leave the organization.
Coverage depends on the policy terms in effect. The relevant period, claim date and reporting requirements may affect how coverage applies.
Before leaving your position, confirm how previous decisions are treated. A broker can help you review the applicable coverage and exclusions.
What does directors and officers insurance cover?
Directors and officers insurance, also called D&O insurance, may respond to certain claims arising from management or governance decisions.
Depending on the policy, this coverage may include certain legal defence costs when a director or officer is personally named in a claim or lawsuit.
For example, investors may allege that an officer selected a subcontractor managed by a friend. They may claim that the decision involved a conflict of interest and caused a financial loss.
Even when liability has not been established, the officer may incur significant legal defence costs. D&O insurance may cover certain defence costs, subject to the policy wording, terms, conditions and exclusions.
Want to review your current coverage? Contact a broker by phone or email.
Do you need D&O insurance?
This coverage may be relevant if you make significant management or governance decisions for an organization. Consider your role, responsibilities and exposure to claims.
D&O insurance may be relevant to people in several roles:
- Business owners and executives, including those in small and medium-sized businesses
- Board members
- Volunteer directors of non-profit organizations
- Business managers
- Leaders of major projects
What should you review before purchasing D&O insurance?
Review the protection already provided by your organization. Check who is insured, which exclusions apply and what policy conditions may affect coverage.
A broker can help you review the existing coverage and assess your needs based on your responsibilities.
Frequently asked questions about D&O insurance
What is the difference between commercial general liability insurance and D&O insurance?
Commercial general liability insurance may address certain claims involving bodily injury or property damage arising from business activities, premises or products.
D&O insurance may address certain claims related to financial, administrative or governance decisions.
Coverage depends on the policy wording, terms, conditions and exclusions.
To better understand this coverage, visit our page about commercial general liability insurance.
Do volunteer directors of a non-profit organization need D&O insurance?
Volunteer directors may also face claims involving decisions made in their roles.
The need depends on their responsibilities and the coverage already in place within the organization.
What types of claims may be covered by D&O insurance?
Depending on the policy, D&O insurance may address claims alleging a wrongful act, such as a management decision, error, omission or certain employment-related practice.
Review the policy wording, coverage, terms, conditions and exclusions.
Does D&O insurance also protect the organization?
Some D&O policies may also cover the organization, in addition to insured directors and officers.
The scope of coverage depends on the policy wording and the type of claim.
When should you consider or review D&O insurance?
It may be useful to assess this coverage before a claim occurs.
Growth, financing or governance changes may be appropriate times to review your protection. These changes do not automatically require new coverage.
Do your activities also involve risks related to advice, errors or omissions? Visit our page about professional liability insurance.
Why is D&O insurance important for directors and officers?
Serving as a director or officer involves decisions that may create personal liability. A lawsuit can arise even when a decision was made in good faith.
D&O insurance may respond to certain claims connected with management or governance decisions. The scope of coverage depends on the policy wording, terms, conditions and exclusions.
Review your role, responsibilities and the protection your organization already provides. To discuss your coverage, contact a broker by phone or email.
To discuss your coverage, contact a broker by phone or email.
