YOU ASK:

Director and officers (D&O) liability insurance vs. general liability insurance - one or both?

WE ANSWER:

General liability insurance covers the overall liability risks of a business. However, the risks involving the directors and officers of the company may exceed the provisions provided in the general liability insurance. Nor will general liability insurance protect the company (including its officers and employees) against errors and omissions that may result in a lawsuit coming from clients or customers.

Hence, there may be a need to get director and officers (D&O) liability insurance on top of a general liability insurance policy.

General Liability Insurance

This insurance will cover bodily injury, property damage, personal injury and advertising damage that the company may face in the course of its doing its business.

Directors and Officers Liability Insurance

This will cover against lawsuits specifically directed to the company's directors and officers if they are sued with regards to how they perform their duties and responsibilities in the company. This protects directors and officers when they are sued personally and are made personally liable for the acts of the company. This can protect the officer's personal assets.

Some grounds that may cause a company officer or director to be liable include:

  • Bad investment decisions
  • Gross negligence, errors or acts of omission
  • Breach of confidentiality or privacy
  • Failure to maintain property
  • Acts of harassment or discrimination
  • Conflict of interest

Coverage

Both general liability insurance and D&O liability insurance will pay for legal defense costs, as well as judgment and settlement expenses, subject to policy limits. The difference is on the kind of lawsuit being faced. Please note that intentional acts to hurt or damage, as well as criminal or fraudulent acts are excluded from both policies.

When Needed?

General liability insurance is needed if your business comes into contact with the general public - customers, visitors and even uninvited trespassers. In this case, almost all businesses will need general liability cover - to protect against a customer being injured by the product or service, or experiencing bodily injury or property damage while in the business premises.

Meanwhile, D&O insurance is usually needed for companies that are answerable to customers, as well as shareholders, employees and creditors.

In essence, general liability insurance will cover liability related to your products and services, as well as your contact with the customer and the general public. Meanwhile, D&O liability insurance will cover how management handles the affairs of the company.

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