The Cost Drivers of Directors and Officers Liability: Part 3 – Coverage and Examples
Directors and Officers Liability (D&O) insurance is a fundamental component of any construction company’s risk management program. A lack of D&O insurance may dissuade talented individuals from seeking an executive position at your company, as they don’t want to put their personal assets at risk in the event of a lawsuit.
As a savvy business owner looking to protect your bottom line, it’s important to determine the type of D&O coverage you need and the scope of the policy.
What Type of D&O Coverage Do You Need?
The unique attributes and risks of your construction company will determine the extent of D&O insurance coverage you need. The type of coverage affects the cost, and it’s important to understand the different types of D&O insurance to determine what covers your risks. Policy options include:
Side A: This coverage protects directors and officers when indemnification is not available. For example, if the company goes bankrupt during a lawsuit, this coverage would protect directors’ and officers’ personal assets.
Side B: This coverage reimburses a company’s indemnification obligations.
Side C: This coverage protects the company itself in the case of a lawsuit.
Employment Practices Liability (EPL): This coverage protects directors and officers against wrongful termination, discrimination (age, sex, race, disability, etc.) or sexual harassment suits from current, prospective or former employees.
Fiduciary Liability: This coverage protects the fiduciaries of employee benefit plans from ERISA lawsuits
Know What Your Policy Covers
While many companies usually focus on the cost of their D&O policy, understanding the scope of the policy is even more critical. Most D&O policies are renewed yearly, and the terms and conditions can change. Read through your policy carefully. Be aware of the following:
- Look at the limits of your liability. Are they enough to cover your exposures? Companies with a lot of risk exposures usually find that they need more than just the primary coverage, and purchase excess insurance as well.
- Be aware of exclusions; most D&O policies do not cover claims that arise from fraudulent or criminal acts.
For some insurance carriers, Employment Practices Liability (EPL) insurance and Fiduciary Liability insurance are policies that are purchased separately from primary D&O insurance. Don’t assume they are automatically included in your D&O policy.
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