No one in their right mind would ever serve on a board, as either an officer or director, if boards did not have a directors & officers liability policy. No one wants to be sued personally and exposed to personal liability for decisions they made in good faith on behalf of a board. And, if they are sued, absent fraud or intentional misconduct, they want to know there is a liability insurance policy that will defend and indemnify them for claims associated with their errors, omissions, alleged wrongful acts, and breach of fiduciary duties. Such claims need to be covered to ensure a board attracts qualified directors and officers; otherwise, good and qualified people will be deterred by the potential exposure of personal liability.
A directors & officers liability policy (known as a D&O policy) covers claims against a board, including a board’s officers and directors, for their errors, omissions, wrongful acts, and breach of fiduciary duties. There is no one-size-fits-all model when it comes to D&O policies so as a board member it is important to know what is covered and what is not. Typically, these are claims made policies that cover claims within the policy period. Also, they are typically declining balance policies meaning that every dollar spent on defense costs reduces the amount of available insurance.
While a D&O policy is absolutely important for boards, it is not designed to insure everything. No insurance policy is. These policies generally are not going to cover fraudulent or dishonest acts by the board. They also are not going to cover property damage or personal injury. (There is other insurance for property damage and personal injury.) There are of course other exclusions that will limit the applicability of the policy which is why it is important to know what is covered versus what is not covered.
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