What Is D&O Liability Insurance? What Does It Cover?

Directors’ & Officers’ (D&O) Liability insurance protects the directors and officers of a company against

legal defence costs and any damages awarded arising from an act, error, omission or breach of their duty to

act in their capacity as a director or officer. If you fall into this category within a business, there are times

you may find yourself as part of a lawsuit against the company you work for. Fortunately, the insurance is

there to protect you, your personal finances, and the organisation from litigation. It is designed for public

companies in particular, but variations of cover are also available for privately owned companies along with

not for profit organisations and community associations.

Claims can be brought by the company’s stakeholders (e.g. owners, investors, lenders, employees etc.) or

by customers, consumer groups, competitors, business partners (venders and suppliers) and government

enforcement/regulatory groups.

What it May Cover

Every policy is different, so it is always important to check with a D&O insurance broker before signing a

contract. Generally there are three clauses that are insured.

Side-A

The Side-A clause directly protects directors when an organisation is unable or unwilling to indemnify each

of their directors or officers due to the corporation’s financial struggles or because of legislation that

restricts such payments. It can also cover a person if the organisation simply refuses to pay the legal fees or

if the corporation is facing bankruptcy and is not allowed to compensate the individual.

Side-B

Unlike Side-A, which covers the individual, Side-B covers the organisation for any payments or

indemnifications that it gives to a director or officer (Company Reimbursement).

Side-C

The third clause, Side-C, covers the corporation or organisation for litigation brought against the body for

instance, shareholder class actions brought against the company in connection with the purchase or sale of

securities, disclosure obligations etc.

Do You Need D&O Insurance?

The need for D&O Insurance largely depends on the business. Do you have contact with vendors or

customers? Are you looking for venture capital funding or other investors? There are a range of variables

that can make you more susceptible to D&O suits. Bankruptcy and customers of organisations are some of

the biggest sources of these lawsuits, but each corporation is different and it is important to talk to a

reputable insurance broker regarding your concerns to determine whether your company requires such an

insurance policy.