Directors and officers (D&O) insurance is risk-reduction coverage for the executive staff of companies that may be subject to lawsuits. Lawsuits occasionally are filed when investors lose money, and upper management--especially directors, officers and board members--can be included. Even if the lawsuits are dropped or settled outside of court, attorneys fees can be high. D&O insurance limits the liability, so that the personal assets of each director or officer are not compromised.
- Lloyd's of London introduced D&O insurance in the 1930s, but there wasn't a tremendous need for the policies until the 1960s, when changes in the interpretation of securities laws made it possible that not only corporations but also directors and officers could face significant liability.
- The Watson Wyatt Worldwide Survey regarding lawsuits involving corporations reports that corporations with large assets are most likely to be named in a lawsuit. According to the survey, the most likely organizations to have claims filed against their directors and officers and have more claims per entity are large national banks. Large technology companies also have become targets of lawsuits, mainly because of the fluctuations in the value of stock and significant losses by investors.
- Over time, the coverage areas included in D&O protection have expanded. A-side endorsement coverage provides coverage for officers and directors that includes legal-defense costs when a company does not indemnify its directors and board members. Some states do not allow companies to indemnify their officers and directors in such lawsuits as securities violations.
B-side endorsement provides coverage to officers and directors who are indemnified by their company. This section does not cover or reimburse costs or losses for the corporation itself.
C-side endorsement coverage allows for entity securities coverage, which provides coverage when securities claims are made against the corporation and its officers and directors. - .D&O insurance has evolved as insurance providers strive to meet the needs of their clients. Customization of benefits designed to fit specific industries is available because the types of suits and claims differ from organization to another. For example, health care organizations face different types of suits than large banking organizations, whose coverage needs will differ from those of technological companies.
- Exclusions to D&O insurance coverage include fraud and dishonesty. The policy will not cover costs caused by the breaking of laws. It also does not provide coverage when one corporate member is suing another member of the same corporation. And there is no coverage for professional liability, meaning that if a board member also serves as an attorney for the corporation, the policy doesn't extend to the member if he is acting as attorney for the corporation. It covers only members serving in their capacity as corporate officers.
评论