Directors & Officers Liability (D&O)

Directors and Officers Liability Insurance, commonly referred to as (“D&O”), is the central method by which an enterprise indemnifies itself from entities acting on its behalf. Protective coverage usually shields the firm’s directors and officers but may include limited language regarding managerial action. Not to be confused with General/Commercial Liability Insurance which covers property damage and a range of personal injury claims made by a third party, D&O mainly targets internal leadership.

How Does D&O Liability Work?

There are times where board members and those with associative power make judgment calls that turn out to be highly unfavorable to the company’s reputation. This is one of many examples when having D&O liability is crucial to the continuity of business. It also underpins CC&R enforcement with regard to physical and abstract design such as with architecture or electoral procedures. Additionally, alleged and unintentional breaches of fiduciary duty are covered as well.

D&O Exclusions and Subjectivity

Directors and officers place themselves outside of the realm of protection where fraud, deceit, misrepresentation and other criminal acts are concerned. While discretion seems incumbent in the decision-making process, the vast amount of applicable subjectivity can make or break a particular case. Upon D&O insurance policy execution, operative leadership may or may not be excluded from protection based on specific parameters. Here are a few caveats to remember when dealing with D&O policies…

Coverage amounts can vary widely from carrier to carrier
Contractually, D&O policies originate through future intention
Conditions are dynamic and can change from one year to the next

As the nature of given business changes, so to can policy rules and regulations. Insurers can adjust risk exclusions according to financial conditions. These types of policies do not cover what is known as uninsurable losses like fines and penalties exclusively designated as such under the letter of the law.