To appropriately protect a business, the owners need to purchase multiple insurance policies. They won’t always know right away, even the most seasoned veterans of the world of business, just what type of insurance(s) they’ll need to purchase. A common form of insurance that most businesses purchase is called professional liability. It’s also known as Errors & Omissions in the professional services sector. Unfortunately, E&O can easily be confused with another, lessor known, type of insurance called Directors and Officers Liability Insurance.
The Difference between D&O and E&O
How can these be so easily confused? Well for one, E&O sounds phonetically a lot like D&O. But there is a big difference. E&O, or professional liability, will protect the company from insureds who believe the company somehow misled them or misinformed them in making financial decisions thus resulting in a loss on the insured’s part. Directors and Officers coverage takes this initial idea and takes it one important step further. If an organization has a board of directors, officers, or shareholders where any of them are responsible for the fiduciary success of the company then that organization must have D&O coverage in place. Here’s why.
Directors and Officers coverage protects the organization from claims made directly against the directors and officers of that organization. It protects the assets of the company should one or several individuals be accused of wrongful acts. It covers items such as attorney costs and covers any potential settlements that may need to be paid out.
Does my business need D&O coverage?
Not all businesses need director’s and officer’s liability insurance. Some businesses are simply too small, or they have a single owner. In such cases, it wouldn’t make sense to purchase this type of insurance coverage. Any company that has a board of directors, officers, or shareholders, absolutely needs Directors and Officers liability insurance. This protects all parties involved in the financial decision making of the company. Nonprofit organizations with boards of directors are an example of a popular type of entity that purchases Directors and Officers liability insurance. In fact, for much of their work with other organizations, it’s a requirement in many contracts.
Unsure if you need Directors and Officers liability coverage? Still unsure exactly what it is? Going over your business’ insurance needs with a qualified agent is the way to go. A licensed insurance professional can break down the risks your business is exposed to, make suggestions, analyze coverage, and quote Directors and Officers liability insurance for you if necessary.