Directors & Officers Insurance

The organization’s finances and its governance, more than its size. Expect questions about revenue, assets, and whether the balance sheet shows stress, since insolvency is where personal claims concentrate. Then the structure: who sits on the board, whether there are outside directors, whether the audit is done at arm’s length, and whether the bylaws and state law allow the organization to indemnify. Capital raises, acquisitions, layoffs, and regulatory attention all matter. Claims history counts, and so does the industry, because some sectors draw more shareholder and regulatory activity.

Sometimes, through prior acts coverage, and it is not automatic. D&O is claims-made, so a policy responds to claims first made during its term. Whether it reaches back depends on the retroactive date or prior acts provision. Some policies offer full prior acts, some set a date, and some exclude anything before inception. A first-time buyer often gets no prior acts at all. Anything already known before inception is excluded in any case, since a claim you can see coming is not a fortuity. Preserve the date when you change carriers.

D&O covers how the organization is run. Professional liability covers what it sells. A claim that a board approved a bad acquisition, misstated finances, breached a fiduciary duty, or failed to oversee management is a management act, and that is D&O. A claim that the work delivered to a client was wrong is a professional service, and that is E&O. Many organizations need both, and the seam between them is where disputes happen. Read how each form defines wrongful act, because that seam is written differently by different carriers.

They are three different insureds inside one policy. Side A pays a director or officer directly when the company cannot indemnify them, which is the piece that protects personal assets in an insolvency or where indemnification is barred. Side B reimburses the company when it does indemnify them. Side C, entity coverage, responds when the organization itself is named. Which sides your form carries decides whose money is at risk. For a nonprofit or private company recruiting directors, Side A is usually the part that makes the conversation possible.

D&O insurance generally does not cover bodily injury, property damage, or professional errors and omissions. Those are usually addressed by General Liability Insurance and Professional Liability Insurance respectively. D&O forms differ in what they exclude, so the policy wording governs.