Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: May 17, 2022

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Directors and Officers Liability InsuranceWithin the coverages that are written under Excess and Surplus Lines, Directors and Officers Liability Insurance, also called D&O Insurance, is of particular need and interest to those businesses or organizations at greater risk. In today’s corporate environment, D&O Insurance has become an integral aspect of conducting business.

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D&O Liability Insurance is meant to protect a corporation from damages as a result of lawsuits that are inevitably brought as business is conducted. These are suits filed against those people who are involved in the running of the company.

The evolution of this line of coverage is as propitious as the growth of industry going back to the time of the Great Depression. This was when the famous excess lines insurer, Lloyds of London, introduced it for the first time. Understandably, there arose a need to protect a corporation’s directors and officers as businesses were not legally permitted to indemnify them at that time.

Evolutionary Changes

The uncanny foresight of Lloyds of London was largely disregarded until the benefit of indemnification became more significant in the decade from 1940 to 1950. By this time the courts, corporations and their directors and officers acted to prompt legislative changes.

The 1960s saw changes in the way securities laws were being interpreted, and this created a very real probability that directors and officers would be held personally liable for their actions.

There was clearly a need for directors and officers to have personal asset protection.

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Responsibilities of Directors and Officers that Leave Them Vulnerable

Officers on the board of directors, consisting of the Chief Executive Officers, President, Secretary/Treasurer and Chief Financial Officer, are responsible for a corporation’s day to day operations. Directors have a fiduciary responsibility to oversee the officers to ensure the best interests of the corporation and its shareholders are being protected, which includes having the authority to appoint and fire corporate officers.

D and O Liability InsuranceThe board of directors initially designates the principal business office and adopts the bylaws. They then elect the officers and select the fiscal year, designate the corporation’s banks, authorize initial agreements and pay the organizational expenses.

Ongoing duties include adopting a Stock Option Plan; entering into contracts, leases, and employment agreements with key employees; adopting the employee benefits plan and company policies; declaring distributions, dividends and stock splits; borrowing money and buying and selling assets; and calling shareholders’ meetings.

By the 1990s, the largest corporations could expect to be targeted simply because they could afford the awards in what is an extremely litigious market.

The Need for D&O Liability Insurance

Any corporation that assembles a board of directors, deals with venture capitalists, or has employees will find their members of management are open to lawsuits that have been accommodated under the D&O Liability coverages. As the corporate market continues to become more sophisticated, the coverages are tailored to the specific needs of the corporation.

Employment Practices Lawsuits (EPL) alone constitute half of all the claims against company directors.

These require intensive participation on the parts of both the Human Resources Departments and the managers and supervisors that deal directly with hiring and firing practices. Even medium and smaller businesses can benefit from having this type of protection in place.

Directors and Officers Business Liability Insurance

Further, D&O Insurance is designed to help protect the firm from claims that may arise through the stockholders, investors, creditors, clients and others.

Due to the fact that company directors can be held personally liable, there is a need to constrain the actions of directors and officers for both the company’s benefit as well as their own. It would be next to impossible to get good candidates for these positions if their own personal assets were at stake in the course of conducting business.

Many companies offer D&O coverage giving an advantage to the corporation looking for competitive rates and coverage that can be tailored to suit their needs.

Given the complexity of coverage, the potential for loss or damages, personal asset exposure and the variables that could result in a denial of coverage, it is best to consult a carrier that will work with the corporation and its directors and officers to obtain the protections.

You can read an opinion on the wisdom of this protection on a website run by American Express here.

How D&O Coverage is Structured

D&O Insurance has had to expand beyond its original intent as a result of market pressures and case law. Tailoring coverage is accomplished through the use of a standard form, endorsements and exclusions. As with all insurance, there are distinct terms and conditions, deductibles and limits of liability offered by a variety of carriers. It is best to get quotes to be able to see how they compare side by side to get the best coverage for the price.

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Breakdown of Coverages

Insuring Agreement A: Also known as “A-Side Coverage” this is the direct coverage for loss as a result of directors and officers committing wrongful acts. Claims may exist where the corporation does not indemnify its directors and officers, possibly due to laws prohibiting the protections or by option of the corporation not to offer the coverage due to lack of funds, bankruptcy or liquidation.

Directors and Officers Liability Insurance DocumentInsuring Agreement B: Also known as “B-Side Coverage” it reimburses the corporation for losses when the corporation has indemnified its directors and officers.

Entity Securities Coverage: This entity coverage for securities claims is part of the recent developments in cases brought against corporations. It provides the corporation protection for its own liability, whether or not the directors and officers end up being co-defendants.

Employment Practices Liability (EPL): This coverage may be included as a stand-alone policy or as an endorsement added to the D&O policy itself. It is an area of claims that has seen an increase in frequency and degree of severity in recent years involving claims of wrongful termination, sexual harassment, failures to promote, and other discriminatory employment practices.

Defense Concerns: D&O policies will provide coverage for defense costs, which gives the insurance provider the right to approve strategies, settlements and expenditures.

To read an in-depth examination of a case in which a company’s D&O insurance was put to the test, visit this entry from the D&O Diaries.

Right to Select Counsel: This is essentially allowing the insured the right to select their own counsel, with the insurer’s consent, of course.

Reimbursement and Advancement of Defense Costs: This specifically relates to reimbursing reasonable defense costs that arise out of claims that are actually covered in the policy.

Liability Insurance for Directors and Officers

Exclusions and Key Provisions

As the cases in the last two decades have multiplied, there has been the need to interpret the language from one policy to another. As a general rule, policy language that is clear will govern the manner in which coverage is applied in a given claim, although any analysis of coverage should really take these differences into account. Below is a listing of the key provisions and exclusions that should be considered when placing coverage:

  • Definition of a Claim
  • Definition of a Loss- This may cover punitive or exemplary damages or matters deemed uninsurable under applicable law.
  • Exclusions- These may include dishonesty, a case in which two insured parties are at legal odds, professional liability, prior bad acts, and prior and pending litigation.

Specialized Coverage

Insurance Liability Protects Directors and Officers of a CompanyThe need to address the issues that pertain to specific types of businesses has produced specialized policies. This is where the dedicated assistance of a qualified agent will serve to best match the terms and conditions to the business’ exposure. Among these are allocation, bankruptcy claims and combined risk policies.

This discussion and outline is intended to initiate the basic understanding of what is involved in the intricate realm of D&O Liability. It cannot be stressed enough how essential it is to obtain the appropriate coverage and to be able to see competing insurers’ plans side by side for comparison. The litigious nature of the market, today, simply does not allow for anything less.

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