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In today's economy, directors and officers of even private companies and nonprofits often become targets of claims for alleged wrongdoing or breach of a fiduciary duty to the organization.

Disgruntled minority-share owners, employees, suppliers, customers and competitors can all bring a lawsuit against directors or officers of a private company or nonprofit. Being personally sued for actions taken in the course of performing corporate duties can financially cripple officers and directors -- even if the suit is completely groundless.

One of the tools for managing the risks of service as a director or officer is D&O, or directors and officers, insurance. But organizations should beware: No two D&O insurance policies are the same. A company must analyze the various D&O policies carefully before selecting one.

A typical D&O insurance policy promises to pay the loss incurred by a director or officer for any alleged "wrongful act" committed while acting for the company. Many D&O policies also require that the insurance company advance defense costs.

Directors and officers should also understand what a D&O policy doesn't cover.

For example, there is usually no coverage for claims brought by one officer or director against another officer or director, nor for personal misconduct, such as fraud, dishonesty or the willful violation of a statute or regulation. Other common exclusions are for claims arising from pollution, defamation and bodily injury and/or property damage (which are usually covered by general liability insurance), as well as claims brought outside North America.

One of the most difficult questions to answer when evaluating D&O policies is how much insurance the organization should purchase. Having sufficient D&O insurance is a selling point to potential board directors and officers, and having insufficient insurance may scare off talented individuals.

Posted 11:51 AM

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NOTICE: This and all content is developed from sources believed to be providing accurate information. The information in this material is not intended to be used as tax or legal advice. Please consult with a tax and/or legal professional for detailed information regarding your individual situation. Some of this material was developed and shared by Reliable Insurance Managers, Inc. to provide information that may be of interest. Reliable Insurance Managers, Inc. is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
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