Directors and Officers (D&O) Insurance

Directors and Officers Insurance (or D&O) protects the current and future directors and officers of a company from legal action as a result of negligence. D&O Insurance is similar to professional liability insurance, as both policies protect companies against lawsuits resulting from errors.

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Eric Stauffer is a former insurance agent and banker turned consumer advocate. His priority is to help educate individuals and families about the different types of insurance they need, and assist them in finding the best place to get it.

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Written by Eric Stauffer
Founder & Former Insurance Agent Eric Stauffer

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Feb 19, 2022

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BoardroomDirectors and Officers liability insurance, often called D&O coverage, protects the executives of a company from legal action as a result of negligence arising from their actions within the organization.  In other words, if they are sued for any action they take as a director or officer, the D&O coverage will step in to assist with legal protection.

How does D&O Insurance work?

What is a director and officer? D&O  insurance protects the current and future directors and officers of any for-profit or non-profit organization from suits arising from perceived or actual wrong-doing.  In a sense, D&O insurance is similar to professional liability insurance; both types of policies protect companies against lawsuits resulting from errors or misdeeds.  In the case of D&O insurance, however, the protection is meant specifically for the directors and officers rather than any other employees.

Some of the things that might be covered by D&O insurance:

  • Misleading statements, whether intentional or accidental
  • Errors and omissions
  • Breaches of duty
  • Wrongful acts

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Who needs Directors & Officers Insurance?

Any company or nonprofit organization that has a board of directors or advisers can benefit from this type of insurance.  For publicly traded companies, D&O insurance is a must-have.  Even smaller companies, including those that are privately owned, can still benefit from this coverage as long as they have the appropriate corporate structure.

Sole proprietorship, partnerships and some small businesses may not need D&O insurance.  For these companies, other types of liability insurance will probably be sufficient.  You can check with your insurer to determine what needs your business may have and ensure that you are purchasing the correct type of liability policy for your company.

How much does D&O Insurance cost?

As with all liability policies, D&O insurance costs are affected by several factors.  Depending on the size of your company and its specific risk level, your premiums may be higher or lower than those of another business.  The best way to know how much your insurance will cost is to obtain multiple quotes from different insurance carriers.  This should provide a reasonable sample to test the cost and coverage types available.

Does an LLC need D&O insurance?

Limited liability company (LLC) may not necessarily require D&O insurance, and it is not mandatory for an LLC to have D&O insurance. However, it still might be something to consider. If you have a board of directors or officers, then your company might benefit from the protection offered by D&O insurance coverage. Similarly, if you are trying to recruit board members, you might want to consider D&O insurance. Without a D&O policy board members would be responsible for covering themselves should they encounter a legal issue while working on your behalf.

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What Is the difference between D&O insurance and E&O insurance?

Both D&O and errors and omission (E&O) are types of professional liability insurance. However, D&O insurance is typically for leaders who are higher on the corporate ladder, protecting their personal assets from claims and lawsuits against them. Errors and omission insurance is available for employees at all levels of a company. It is often purchased by professional service providers or companies to protect them against client claims of negligence, misinformation, or inadequate work.

When does a business need D&O insurance?

D&O insurance is not required, however, many businesses that have a corporate board or advisory committee may benefit from D&O insurance. It’s not just large public companies that can benefit. Even small businesses, not-for-profit, and start-ups can get D&O insurance.

Who is D&O insurance right for?

Any business, including private companies, public companies and financial institutions with a board of directors should have Directors & Officers liability insurance coverage. Claims against companies and their directors and officers are increasingly common.

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Why do I need Directors and Officers insurance?

Many companies who look for D&O coverage do so because they’re going through an institutional round of funding. What they may not realize is that the policy they’re buying has more utility than just letting you cross an item off your term sheet to-do list. The VC wants you to have this policy in place for two main reasons.

Directors and Officers (D&O) Insurance Review: The Bottom Line

Coverage for a business’s senior leaders and executives Directors and Officers (D&O) insurance is designed to protect a company’s directors, officers, board members, and managers from allegations of wrongdoing related to their leadership with the company. This liability insurance provides legal defense and financial protection for your company’s officers and directors in the event they are personally sued.

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