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Understanding How D&O Insurance Works

Most business owners raise questions about insurance policies that they have heard of, but don’t have a full understanding of the function of the coverage. D&O insurance is a policy that some businesses, while needing this policy, don’t quite grasp its function or effectiveness. Directors and officers liability insurance is coverage intended to pay for claims against members of a company or organization, as indemnification for losses, or advancement of defense costs.

This applies in the event an insured suffers such a loss. Losses are often a result of a legal action brought for alleged wrongful acts by a member of a board of directors as a result of actions taken in their capacity.

Such coverage can extend to defense costs arising out of criminal and regulatory investigations or court trials as well. In fact, civil and criminal actions are often brought against directors and/or officers simultaneously. You can purchase oc insurance that deals specifically with issues relating to this subject.

The D&O market is a competitive one

This market had for some time seemed difficult for companies attempting to purchase D&O insurance. Many organization’s cited large increases in premiums, fewer bidders, and hard-line negotiating by insurance carriers as an issue. Fortunately, the landscape has dramatically changed in recent years. It’s now quite common for companies that had only one D&O insurer bid on an account to find themselves now with multiple carriers competing for their business.

Company directors and officers find themselves with a completely different set of circumstances now. They can spend time evaluating the strengths and weaknesses of various quotes and how to use that knowledge to negotiate the best possible coverage rates.

Many former officers and directors know that a failure to procure adequate D&O insurance coverage can result in significant personal losses. Corporate indemnity, which directors and officers rely upon to pay their defense lawyers in the event they are investigated by a federal agency or sued personally, disappears with insolvency or bankruptcy of the corporation, making them vulnerable to costly lawsuits.

While there is little directors and officers can do to diminish the complexity of the business, and the legal and regulatory environment in which they operate, a great deal can be done to protect the personal assets of directors and officers through a combination of strong corporate governance, broad corporate indemnification, and a risk transfer program that includes a high quality D&O liability program, available through oc insurance agencies.

 

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