Directors and Officers (D&O) insurance is a vital safeguard for individuals serving on corporate boards and officers of companies. It provides protection against a wide range of liability claims, but like any insurance policy, it has its limitations. In this article, we’ll explore what D&O insurance typically does not cover, helping you understand its boundaries and the importance of supplementary coverage.
Understanding Directors and Officers (D&O) Insurance
Before delving into its limitations, let’s briefly explain what D&O insurance is:
Protection for Leadership: D&O insurance is designed to protect directors and officers of companies from personal financial losses in the event they are sued for alleged wrongful acts committed while managing the company.
Common Exclusions and Limitations of D&O Insurance
While D&O insurance offers extensive coverage, there are notable exclusions and limitations:
1. Criminal Acts: D&O insurance typically does not cover individuals for criminal acts or intentional wrongdoing. If a director or officer is involved in fraudulent activities or illegal conduct, D&O insurance may not apply.
2. Personal Profits: Claims related to personal profits or financial gains made by a director or officer to the detriment of the company may not be covered.
3. Bodily Injury or Property Damage: D&O insurance primarily focuses on financial liabilities and may not cover claims related to bodily injury or physical property damage. For such coverage, a company may need separate liability policies.
4. Employment Practices: Claims related to employment practices such as discrimination, harassment, or wrongful termination are often not covered under D&O insurance. Companies usually require employment practices liability insurance (EPLI) for this type of coverage.
5. Known Claims: D&O insurance typically excludes known claims or wrongful acts that were known or anticipated before the policy was purchased.
6. Insured vs. Insured: Claims brought by one insured against another insured, such as a lawsuit between two directors or officers, may be excluded under D&O insurance.
Importance of Supplementary Coverage
Given the limitations of D&O insurance, it’s crucial for companies and individuals to consider supplementary coverage to fill potential gaps. Here are a few additional policies to consider:
EPLI (Employment Practices Liability Insurance): To protect against claims related to employment practices, including discrimination, harassment, and wrongful termination.
Cyber Liability Insurance: For coverage against data breaches and cyberattacks, which are not typically covered under D&O insurance.
Fiduciary Liability Insurance: To protect individuals involved in managing employee benefit plans, such as 401(k) plans.
Crime Insurance: To cover losses from employee theft, embezzlement, or fraud, which may not be included in D&O policies.
Conclusion:
Directors and Officers (D&O) insurance is a valuable asset for individuals serving on corporate boards and officers of companies, offering protection against a wide range of liability claims. However, it’s essential to understand its limitations and exclusions.
Knowing what D&O insurance does not cover can help companies and individuals make informed decisions about supplementary coverage to bridge potential gaps. Consulting with insurance professionals or agents can provide guidance on selecting the right combination of insurance policies to ensure comprehensive protection against various liabilities.
While D&O insurance is a critical component of risk management, it should be part of a broader insurance strategy tailored to the specific needs and risks of the company and its leadership.
