Fresh Prince of D&O
Directors & Officers Liability for Staffing & PEOs
“So this is a story all about how an officer’s assets got flipped, turned upside down. So I’d like to take a minute; just sit right there. I’ll tell you how to stay covered with an insurance policy called D&O.”
Alright, so maybe it doesn’t rhyme as well as the Fresh Prince theme song, but nonetheless, a person’s life can be flipped upside down – in a bad way – without proper Directors & Officers (D&O) Liability coverage. What exactly is D&O and who does it cover?
Let's Start with 'Who'
Directors are elected by shareholders who entrust them with the management of a corporation or entity. They have a duty to act in the best interests of the shareholders and appoint and supervise the officers. They’re responsible for ensuring compliance with federal and state regulatory requirements, determining a corporation’s business strategy, avoiding conflict of interest and acting in a manner they believe to be in the best interests of the corporation. Directors make major business and financial decisions and appoint executive officers such as the CEO, president, treasurer and secretary to manage the daily operations of the corporation.
The directors often times are major stockholders and executive officers of a corporation, but they also can include outside business or social leaders who don’t have a financial stake in the company. A corporation’s directors are elected by its stockholders according to the bylaws.
Now the 'What'
D&O insurance protects your directors and officers against claims alleging financial loss arising from mismanagement of the company. There are three main areas of coverage in a D&O policy:
- Part A – Individual Non-Indemnified Liability: This is coverage for individual directors and officers.
- Part B – Individual Indemnified Liability: This provides reimbursement coverage to the company for a contractual obligation to indemnify directors and officers who serve on the board.
- Part C – Corporate Entity Liability: This provides coverage for the company or entity itself.
End with the 'Why'
In our litigious society, not only are the assets of the corporation or entity at stake, but the personal assets of the directors and officers are also at stake. Without this coverage, top talent may hesitate seeking an executive position, because they don’t want their personal assets on the line. The cost to defend a lawsuit can be quite costly.
If you have questions or need help with your D&O policy, contact the ‘A’ Team.
- Eliminating Your Risks with Directors & Officers Liability
- Corporate Accountability: Directors & Officers 101
- Directors & Officers Liability Webcast
- Liability E-Book
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