Directors & Officers Liability insurance provides coverage for your own “wrongful act” while performing duties as a Director or Officer of the entity, or the“wrongful acts” of other board members.
Why Do You Need Director’s & Officers Liability Insurance?
While an organization is legally permitted to cover the costs incurred as a result of personal liability stemming from the activities performed on behalf of the organization, this ability, called indemnification, may not apply to every situation. The director or officer may become personally liable in their duties performed for the organization.
The basic responsibility of the director is to represent the interest of the organization, their members and their constituents and to do so within the law. The basic duties of the director are:
Given this role of a director, it is important to note that you can personally be held liable for claims arising from:
Claims may be made by:
A directors & officers liability insurance policy helps protect the organization from the financial loss of having to defend, and indemnify any party that suffers an insured loss. Furthermore, it helps ensure that your personal and business assets are not affected by your participation on a board.
In order to protect the organization and yourself, the board must:
In a survey done by Chubb Insurance, the average payout for a D&O claim in 2018 was $429,756* with nearly 14% of companies surveyed being part of a D&O claim. It is important to note that defense costs alone can be enough to cripple an organization.
D&O coverage is critical for non-profit entities as well as for-profit entities. I highly recommend that every not-for-profit organization carry a Director’s & Officers liability insurance policy to protect their members. Your legal counsel will tell you: Never join a board of directors without the existence of this type of policy.
There are many different policy wordings available, so please contact us for further details.