Directors and Officers Liability Insurance Can Save You from Financial Ruin
Directors and officers are quickly joining the ranks of the professional and business owner as targets for liability suits. By taking on the highly visible position of director or officer, you assume great personal risk. You could be held liable for any number of things from abuse of authority and libel to slander and financial mismanagement brought against you by shareholders, creditors, customers or employees — to name a few.
Considering the ever increasing amounts that juries award in today’s courtrooms, a liability suit could conceivably wipe out your life savings and drive you into personal bankruptcy, not to mention wreak havoc in your company. By covering the litigation costs and damages in the event you are sued, director’s and officer’s (D&O) insurance may save you and your company from a financial disaster.
Take a look at the video below that describes how D&O can apply to you and your company.
Directors and Officers Liability Coverage
Designed to help protect both the assets of the company and the personal assets of the individual, D&O insurance covers those liabilities that may result from an individual or group performing their task(s) as directors or officers. Anyone acting as a director or officer for a legal entity is covered under most plans. This includes positions of chairman, deputy chairman, president or vice president of the board of directors, the managing director, general manager, comptroller, secretary or treasurer and any other person who performs the corporate functions similar to those performed by an officer.
Coverage can be expanded to encompass full-time or part-time, past, present, future or retired directors or officers. The basic form of coverage may not offer all of the normal terms and conditions that you require. Therefore, many policies include endorsements that enhance the scope of coverage.
All D&O insurance policies should include the following information:
- Deductible that applies to each claim (retention per claim)
- Maximum dollar amount for which the insurer is at risk under the policy, including costs of defense
- Time period in which claims must be made in order to be covered
- Exclusions limiting the scope of covered claims
In contrast to insurance that is written on an occurrence basis, D&O insurance is a “claims made” insurance, covering only claims made in the period stated in the policy.
Is D&O Liability Insurance for You?
Whether you own a company and are considering offering D&O insurance or whether you are the individual officer or director in need of coverage, you should know the risks facing you. A recent survey determined that the average cost of defending a D&O suit is more than $1 million. The average settlement or judgment is generally another $1 million-plus. Expenses like this could cripple a small company and could ruin your personal finances.
If you’re sitting on a board, whether profit or non-profit, you should insist upon the presence of D&O insurance. Those involved with non-profits are more at risk, because unlike non-profits, most corporations can indemnify their directors and officers to a certain degree. Charitable organizations don’t usually have the funds to provide a defense or to pay settlements that may arise from a suit.
The corporation itself gains a benefit in offering D&O insurance. Not only does it protect against suits, it is highly valued and will help a business attract and retain quality directors and officers.
Other Variables to Consider
Depending on deductibles and other variables, D&O insurance can cost roughly $60 to $100 per employee per year. A typical deductible is $5,000. Therefore, it may be cheaper to take care of the more inexpensive problems without the insurance, and choose a higher deductible to save money in the event of a larger suit.
Other variables that factor into the cost are the limits of coverage and your claims history. If you have a history of claims, you will likely face higher premiums.
by Karen Murphy, MostChoice.com