Who is the D&O liability insurance policy coverage for?


D&O stands for Directors and Officers liability insurance - a policy coverage specifically designed to protect the management of a corporation in the event of a corporate fraud or corporate mismanagement claims. Since the latter are very common, directors and officers should make sure they carry D&O liability insurance policy coverage under their belt lest they lose their business.

If you are the head of a corporation, you are exposed to a considerably high risk of being sued by investors, clients and even other companies. Bad governance claims are sometimes made with little reasonable justification and can result in the defendant losing thousands - sometimes even millions - of dollars.

The D&O Insurance Policy - Characteristics

Since it deals with the delicate issue of corporate management, the Directors and Officers insurance coverage is written on an individual-case basis. Still, there are standard features that all D&O policies share, such as:

  • D&O personal liability (A-side) coverage pays all the compensation amounts or damages on behalf of the director or officer of a corporation for a wrongful act that the director or officer has been held liable for. The compensation is up to the policy limits specified in the insuring agreement and is paid directly to the plaintiff, only when the corporation cannot find the funds to indemnify its officer or director for their losses.
  • The corporate reimbursement (B-side) coverage kicks in whenever the corporation has reimbursed its management for the losses incurred in a liability case. In the event of that happening, the insurer reimburses the corporation for the loss of funds, up to the policy limits.
  • Insuring agreement C, known as entity securities coverage is - as it name suggests - a provision, which provides protection to the corporation in case it happens to be the defendant in a mismanagement or corporate fraud lawsuit. It is an optional clause which means that the insured can opt out of it.
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