Directors and officers liability insurance, often called D&O insurance, protects against covered claims alleging wrongful acts by a company’s directors, officers, and sometimes the entity itself.
Why It Matters
Leadership decisions can trigger lawsuits from shareholders, regulators, creditors, employees, or other stakeholders. D&O coverage exists because those management-liability claims are different from ordinary general liability or property risks.
How It Works in Real U.S. Insurance Practice
D&O policies often separate coverage into insuring sides that address individual non-indemnified loss, corporate reimbursement, and entity securities exposure. The form is heavily wording-driven, with exclusions, insured-versus-insured issues, reporting obligations, and claims-made timing all carrying major weight. Underwriting focuses on governance, financial condition, capitalization, litigation history, and transaction activity.
Practical Example
If shareholders sue senior leadership alleging that misleading disclosures harmed investor value, the company’s D&O program may provide defense and indemnity subject to the policy’s coverage grant, exclusions, and retention structure.
Common Misunderstandings or Close Contrasts
- D&O is not a substitute for general liability or professional liability.
- Entity coverage can exist, but the policy is still centered on management-liability exposure.
- Claims-made reporting rules are critical.
Knowledge Check
If a visitor slips in a company lobby, is that usually a D&O claim?
No. A lobby slip-and-fall is usually a general liability issue, not a management-liability claim against directors and officers.