Directors & Officers Insurance

This type of coverage protects directors and officers against claims for losses resulting from failure to manage their organizations properly. Claims can be made from many sources. Some of those sources are competitors, vendors, customers, employees, investors/shareholders of the company, and government agencies.

Although many believe that public companies have the true exposure to loss for their directors and officers, private companies also face tremendous exposure to litigation. In fact, plaintiffs other than security holders brought the bulk of claims filed in recent history. Any organization that has one or more employees, or deals with customers, clients, competitors, the government, other third parties, is planning on making a private offering of debt/equity, has potential for litigation consequences.

A public company’s primary financial exposure to a claim is from security holder litigation. Although Congress passed the Private Securities Litigation Reform Act of 1995 to reduce the volume and expense of these types of claims, technology companies are increasingly targeted by the plaintiff’s bar. In addition, companies that are considering a merger or acquisition should have this insurance in place to protect them from the inherent exposure in these activities.

Coverage Highlights:

• Covers claims made (Not an occurrence form) against Directors & Officers within the policy period.
• The contract would be an indemnification contract or a duty to defend contract.
• Directors & Officers are provided coverage for acting within their scope and capacity as Directors and Officers of their company or a subsidiary.

Common exclusions within a Director & Officers Policy include:

• Known or existing liabilities
• Fraud, Dishonesty, Criminal Acts (Need to be proven)
• Outside Directorship liability
• Punitive Damages
• Liabilities covered under other insurance contracts

There are 3 main areas of a private company D&O policy;

• Coverage for Directors & Officers in the event the company is unable to reimburse them
• Coverage for the company’s obligation to indemnify the Directors & Officers
• Coverage for the legal liability of the company (Can be included on most forms if not already part of the insurance contract)