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Directors and officers have a duty to exercise due diligence in overseeing the management of the organization that they serve. They are required to act in good faith and in the best interest of the organization. Claims or potential claims must be promptly reported.

What Is Directors and Officers Liability Insurance?

HDirectors and Officers (D&O) insurance, also known as Management Liability, is coverage for Management-level employees that provides protection against claims against them which may occur due to the outcomes of their decisions or practices. D&O Liability can protect company directors and officers individually, as well as the company as a whole.

Why Should I Purchase D&O Coverage?

Company managers are not just accountable for their own actions, but also the outcome of any decisions they make. It’s easy to make the wrong call if you’re working in a high-pressure environment, and if the mistake is particularly damaging the manager is personally liable for it. As more and more businesses operate globally it is essential for managers to have a solid knowledge of their markets as well as the various compliance regulations, government bodies, auditors’ opinions and best practices for corporate governance and risk management. Any broken regulation or missed area of compliance could prove costly for a business that trusts an employee to make high-level decisions. By purchasing D&O insurance coverage, companies and organizations can protect themselves against any unintentional mistakes.

What Does Directors and Officers Insurance Cover?

D&O insurance is primarily focused on the financial protection of managers in business, companies or organizations from claims made regarding any perceived wrongful acts, errors and omissions or whistleblowing. Certain risks, depending on the country of origin, can include:

employment practices

HR issues such as discrimination, sexual harassment, wrongful termination or constructive dismissal shareholder actions

reporting errors

inaccurate or inadequate disclosure

unauthorized decisions

legal action already taken when the policy begins

breaching compliance, regulations or laws

D&O does not necessarily just cover the direct actions of a managing executive, but also the wider activities of the workforce. If any of these risks occur because of negligence from a manager -- or they fail to ensure their team upholds any areas of compliance -- then they may also be held responsible and accountable for their actions. Claims can be made from a variety of sources ranging from former employees, regulators, shareholder groups, third parties and even the actual company themselves. The expenses that need to be paid because of claims of wrongdoing or negligence from a manager include:

administrative and criminal proceeding costs

legal expenses / defense costs

financial losses / loss of earnings

Under a typical D&O insurance policy all past, present and future managers are covered. This means that as long as the coverage is kept up to date, historical claims can be included.

Is There Insurance For Non-Profit Directors And Officers?

While some D&O products are all inclusive of directors and officers from all sectors, others concentrate specifically on nonprofit organizations. As the professional stakes can be higher for a nonprofit – in terms of brand reputation and personal assets – it is important to make sure that any potential legal fees or damages are covered from in the event of litigation from vendors, donors, competitors, employees and government regulators.