What is directors’ and officers’ liability insurance?
Directors’ and officers’ liability insurance protects past, present, and future directors and officers of for-profit or nonprofit companies from damages resulting from alleged or actual wrongful acts they may have committed in their positions. The policy protects against any actual or alleged error, misstatement, omission, misleading statement, or breach of duty. In addition, some policies extend the same coverage to employees.

Directors’ and officers’ liability insurance is needed when a board of directors is assembled. Investors usually require that you have directors’ and officers’ liability insurance as part of the conditions for funding your company.

Why buy directors and officers liability insurance?
Claims from employees, clients, and stockholders may be made against any company and against its directors and officers. Since a director or officer can sometimes be held responsible for the company’s acts, most directors and officers will want to be covered rather than risk their personal assets.

Investors and members of the board of directors will not risk their assets to serve as corporate directors or officers without directors’ and officers’ insurance coverage.

What do directors’ and officers’ liability insurance cover?
Directors and officers liability insurance covers criminal, administrative, civil, and regulatory proceedings based on actual or alleged acts, errors, omissions, misstatements, neglect, or breach of duty committed or allegedly committed by a director or officer.

Exclusions
A director and officer liability insurance policy covers defense expenses and financial damages or settlements. The policy does not cover wages, fines, taxes, penalties, or multiplied damages.

Coverage limits
Coverage limits are available from $500,000 to $1,000,000 per claim and annual total limit, with a $5,000 deductible per claim.

Directors and officers liability insurance vs. professional liability insurance or errors and omissions coverage.
Directors’ and officers’ liability insurance is often confused with professional liability insurance or errors and omissions coverage. The two are not the same; professional liability/errors and omissions coverage applies to performance failures and negligence concerning products and services, not the performance and duties of the executive team (as with directors and officers liability insurance).