Directors & Officers (D&O) Frequently Asked Questions
Directors and Officers liability insurance (often called D&O insurance) is liability insurance payable to the directors and officers of a company or to the organization itself to cover damages or defense costs in the event they suffer a loss. These losses are a result of a lawsuit for alleged wrongful acts while acting in their capacity as directors and officers for the organization. Such coverage can extend to defense costs arising out of criminal and regulatory investigations, trials and often civil and criminal actions are brought against directors and officers simultaneously.
To put it simply, D&O insurance covers liabilities of the corporation as well as the personal liabilities for the directors and officers of the corporation.
Here are the most frequently asked questions I receive around D&O and the answers to help you minimize your risk.
Can I be sued if I serve as a member of the Board of Directors?
Yes. Under our legal system a lawsuit can be filed against anyone. Many lawsuits that name individual directors or officers are filed each day. Whether the claims have merit or not, if the officer or director was acting in good faith on behalf of the corporation, the officer or director is entitled to be fully indemnified.
As a director or officer can I become personally liable for my actions?
Yes. If you fail to act in good faith, misappropriate assets or use the corporation for personal gain you may be held liable. Such liabilities, if found to be meritorious, would not be subject to indemnity by the corporation.
Are my personal assets at risk if I serve as a board member or officer?
Yes, but before your personal assets would be at risk the following must occur:
1. A judicial determination that the claim asserted the corporation has merit.
2. A judicial determination that the claim asserted against the corporation is not limited to the corporate assets (limited liability of the corporate form does not apply).
3. A judicial determination that as a corporate director or officer you should be held personally liable for your conduct.
4. The damages awarded against you exceed the combined assets of the corporation and the D&O insurance maintained.
Still have questions regarding Directors and Officers liability insurance? Contact a member of our Executive Risk team.
- Directors & Officers Liability Flyer
- Directors & Officers Webinar Replay
- Fresh Prince of D&O
- Liability E-Book
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