D&O liability insurance is an insurance policy that covers the directors and officers within an organization. It is fully known as directors and officers’ liability insurance. Many company directors and senior officers are constantly being hammered with potential lawsuits from every corner, companies turn to D&O liability insurance for the protection of their executives.
How D&O liability insurance works
Most companies rely on insurance for risk management and protection from the unknown. Companies purchase commercial liability insurance in other to protect the longevity of their business. D&O liability insurance is a fragment of the commercial liability insurance; companies purchase D&O to cover the hind of their directors and officers in case of losses they might incur during lawsuits. Generally, D&O insurance will pay for any damages caused by their directors while performing their duties. It is a common scenario these days to find company directors being accused and sued for wrongful acts during their tenure. This is where D&O insurance comes into play. D&O insurance policy will help foot any expense that may arise during this lawsuits. D&O insurance also covers all personal lawsuit directed towards these directors that is within its policy. Choice of liability coverage is however made by the insurance companies.
Benefits of D&O liability insurance
Many small and medium enterprises are known to under estimate the protection D&O liability insurance provides to their businesses. Understanding the benefits of D&O policies will help them have a rethink. Some of the major benefits of D&O liability insurance are;
- It protects the directors and officers of companies against external lawsuits from customers, rival companies and law enforcement agencies. Directors are the decision makers and their decision could bring grievances to some individuals, D&O policies covers any loss that may arise in such circumstances.
- It protects the directors and officers from internal lawsuits from shareholders and subordinate employees. Directors may also make decisions or act in a manner that is not favorable to company shareholders or junior staff, lawsuit may arise and with D&O policies, directors are covered.
- It brings more financial security for directors and officers of a company. Successful directors are always a target for marauders. They tender false accusations in other to extract money from these directors. D&O insurance will cover for any expenses required to vindicate directors in event of such false claims.
D&O liability insurance are sometimes purchased as part of a company’s commercial liability insurance, in some other cases it is purchased separately. Country policies differ as to whom is suppose to purchase the d&o insurance for directors, some mandates the directors to purchase on their own while others allows companies to do the purchasing. However it is being purchased, D&O liability insurance is of utmost importance for all kinds of corporations. Operating your company without D&O liability insurance is never a safe practice, and could bring a paralyzing loss to your company in the future.