Why do you need Directors & Officers Insurance?

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Key Point

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Key Point

Cliche scenester Wes Anderson, Etsy Vice mustache umami keffiyeh High Life flannel craft beer banjo lumbersexual literally cornhole.Cliche scenester Wes Anderson, Etsy Vice mustache umami keffiyeh High Life flannel craft beer banjo lumbersexual literally cornhole.

Key Point

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What is Directors & Officers Insurance?

Historically, D&O policies were really just designed to protect the personal assets of those key individuals but the scope has since expanded. Companies can now indemnify their executives against covered claims and then turn to their D&O policy for reimbursement. If the company itself is named in a suit, the policy would defend the corporate entity in addition to its leadership.

Most of the insurers we work with will extend the coverage to employees and volunteers outside the board of directors as well. These include external advisors, scientific advisory boards and employed lawyers.

The types of claims that are covered involve an individual’s actions and decisions (or failures to act/decide) in his or her capacity as a leader of the company. This can include allegations of breach of fiduciary duty, mismanagement of shareholder voting procedures, unfair trade practices, misrepresentation, securities violations in connection with private placements, and failure to comply with regulations/laws (to name a few).

Coverage can also be expanded to offer additional limits to protect execs when the company is insolvent and can’t provide indemnification. These additional limits can be vital since companies that are in financial trouble are much more likely to be named in a D&O suit. It can be a vicious cycle. The coverage enhancement ensures that, even if the coffers are dry and the policy has been used up, there will be a safety net available to catch individuals who are still the target of a suit but can’t be protected by the company.

Other enhancements include coverage for the costs of investigating a derivative demand claim (when your shareholders act on behalf of the company and sue you) or the legal defense costs of a dilution suit from a former exec.

Fraud is a frequent allegation made as part of commercial lawsuits. Problematically, fraudulent acts are not covered by insurance. But here’s the key: get the right D&O policy and the carrier will pay to defend you against that allegation until it’s proven true. Assuming the fraud claim is unfounded, a well-written D&O policy will pay to get that part of the suit knocked out.

Protect Yourself and Your Company

What does Directors & Officers insurance cover?

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Ad decore legere deterruisset his, ceteros ponderum scribentur ius id. Per postea civibus intellegat ne. In facilis lucilius cum, alterum referrentur cu per. Ei nemore imperdiet per, labores invidunt ocurreret nam ut. In cibo fugit zril vix, doming deseruisse signiferumque mel an, at est duis pericula. At illud paulo eligendi vel. Amet alia sadipscing ei cum, ex integre malorum insolens usu.

This is Covered
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This is Covered
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This is Covered
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This is Covered
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How much does Directors & Officers insurance cost?

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Ad decore legere deterruisset his, ceteros ponderum scribentur ius id. Per postea civibus intellegat ne. In facilis lucilius cum, alterum referrentur cu per. Ei nemore imperdiet per, labores invidunt ocurreret nam ut. In cibo fugit zril vix, doming deseruisse signiferumque mel an, at est duis pericula. At illud paulo eligendi vel. Amet alia sadipscing ei cum, ex integre malorum insolens usu.

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Who needs Directors & Officers insurance?

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Ad decore legere deterruisset his, ceteros ponderum scribentur ius id. Per postea civibus intellegat ne. In facilis lucilius cum, alterum referrentur cu per. Ei nemore imperdiet per, labores invidunt ocurreret nam ut. In cibo fugit zril vix, doming deseruisse signiferumque mel an, at est duis pericula. At illud paulo eligendi vel. Amet alia sadipscing ei cum, ex integre malorum insolens usu.

Industry

This industry need D&O insurance because......... I said so

Industry

This industry need D&O insurance because......... I said so

Industry

This industry need D&O insurance because......... I said so

Industry

This industry need D&O insurance because......... I said so

Industry

This industry need D&O insurance because......... I said so

Industry

This industry need D&O insurance because......... I said so

Industry

This industry need D&O insurance because......... I said so

Industry

This industry need D&O insurance because......... I said so

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D&O Insurance Structure: Side A, B & C

Side A:
Protects solely the individual directors by paying the defense costs and settlements levied on the directors as a result of a lawsuit.  Side A will only pay the individual directors when the entity is unable (i.e. insolvent) or legally not permitted to do so. Typically, individual directors will ensure that the company purchases additional Side A coverage on top of the traditional ABC coverage.

Side B:
Indemnifies the entity after the entity has paid the individuals named in the lawsuit.

Side C: 
This is entity coverage.  Should the entity be named along with the individual directors in a lawsuit, this coverage protects the balance sheet of the company and will reimburse and costs/settlements incurred.

The below graphic illustrates how sides A, B and C work with regards to claims against directors and a securities claims against the company itself:

What D&O limits do you need?

Choosing the right D&O limits for your business depends on a number of factors including:

  • Financials
  • Shareholders
  • Industry
  • Revenue

There is no rule of thumb and appropriate limits will vary on a case by case basis that depend on the combination of factors we’ve outline (and more). Some companies require only $5m and others need up to $50m or even $500m.

Below is an example of how a potential D&O tower could be structured: