A business is subject to many risks, including getting sued. Since this is an entity recognized by law, the business can be sued or claimed against. For this reason, many company executives have seen the reason to get directors and officer insurance to protect the business.
This is one of the “unconventional” insurance policies because it is not as popular as the likes of general insurance. If you serve as the CEO of a company or hold any executive position, you need the policy.
In this article, you will find out the relevance of getting directors and officer insurance for your company. You will also learn the differences between the policy and other types, such as general liability insurance.
What is Director and Officer Insurance?
It is a type of insurance policy intended to protect the company or business executives from personal losses accrued to their positions. Thus, it is not just about protecting the company. It is more of protecting yourself as a business owner or company executive.
Typically, directors and officer insurance work by protecting the business executive against a lawsuit. In that case, the business executive has been sued by a third party because of his or her actions or inactions.
By getting the directors and officers insurance, you would be able to protect yourself and extension, the business from such lawsuits.
What Does Directors and Officers Insurance not Cover?
The directors and officer insurance definition states that the business executive is primarily protected by the policy.
Therefore, any loss or lawsuit that doesn’t have to do with the directors, officers, or executives of the company is likely not to be covered.
With that being said, let us look at some of the director and officers coverage options:
1. Side A Director and Officer Coverage
This type of directors and officer insurance coverage is ideal for companies that are unable to pay indemnification. In such a case, the director and officer insurance company would cover the costs of the claims made by the directors and officers of the company whose personal properties are at risk.
Worthy of mentioning is that the Side A directors and officer insurance coverage are mostly triggered when the company must have declared bankruptcy.
2. Side B Director and Officer Coverage
This type of directors and officer insurance coverage is triggered when the said company grants indemnification.
The essence of the Side B directors and officer insurance coverage is to protect the interests of the company because it is insured and its properties are at risk. Also, the Side B directors and officer insurance coverage repay or reimburse the legal costs arising from lawsuits filed against the company.
3. Side C Director and Officer (D&O) Coverage
This is the third type of directors and officer insurance coverage. It has to do with the coverage of the company itself.
Haven noted those, the type of directors and officer insurance coverage you go to depends on the needs. If you are looking to cover the entity or business, the duo of Side B and Side C directors and officers insurance coverage options are better. But if you want to get full coverage as a director or company executive, go for the Side A coverage.
Directors and Officers (D&O) Insurance Policy & Other Policies
Some business owners in the United States want to be sure of their insurance coverage options. Should they go for the directors and officer insurance or settle for general liability insurance?
In this section, we are going to talk about the differences between the directors and officers (D&O) insurance policy and the other business insurance policies.
Directors and Officers Insurance vs General Liability
General liability insurance is one of the popular business insurance policies in the United States. Should you purchase the policy or go for the directors and officer insurance?
The primary difference between directors and officer insurance and general liability insurance has to do with the type of damage. General liability typically covers the costs of bodily injuries to a third party, while directors and officer insurance cover damages for which the business is liable.
The damages can be anywhere between sexual harassment, wrongful termination, or worker’s employment and monopoly within the company.
Directors and Officers Insurance vs Professional Liability
The major difference between directors and officer insurance and professional liability is that the former covers only the board members while the latter covers any other professional in the company.
For example, directors and officer insurance cover the CEO, or members of the Board of Directors while professional liability covers professional workers in the company.
Directors and Officers Insurance vs Management Liability
Director and officer insurance is sometimes regarded as an extension of management liability insurance policy. It is because of the protection of the top-level managers in the establishment or company.
However, there is a major difference between the two. Directors and officer insurance only protects the company executives and their assets if they are sued while serving in the capacity.
On the other hand, management liability insurance covers both the company and its executives. The management liability insurance also protects the executives if they are sued against the statutory obligations they carried out while acting in their capacities.
Directors and Officers Insurance vs Professional Indemnity
The primary difference between the two is that directors and officer insurance protect the company executives from mistakes they made while acting in that capacity. Professional indemnity insurance protects the business or company against lawsuits arising from negative customer experiences reported by the customers/clients.
Should I Get Directors and Officers Insurance for My Business?
The risks of doing business are too many to ignore. In the United States, you have many competitors striving to take over your spot. One mistake on your part or that of your business might cost you a lot of customers and revenue.
You need to get the directors and officer insurance policy for the following reasons:
- It is an essential insurance policy for a company with a Board of Directors.
- The insurance policy can protect both mistakes made by the company executives and the company itself.
- With the coverage, you can save costs on legal fees arising from a lawsuit against the business.
- Getting directors and officer insurance is worth it if running a private company in the United States.
Conclusion: Directors and Insurance Policy Protects Your Business
There are different kinds of insurance policies for businesses operating in the United States. Most of those focus on the direct actions of the company or business that affects third parties. But the directors and officer insurance protect the company executives and the business in some cases. Think of this as dual insurance coverage to keep both the company executives and the business safe from lawsuits and claims.