Directors and Officers (D&O) insurance is a must for public and private companies functioning in an increasingly litigous society, regardless of the company's size. Non-profits can benefit from the coverage as well.
Typically, D&O policy coverage is broken into three different "sides," A, B, and C. These are often bundled together to ensure that the business is fully protected, and they include:
Side A: This side covers the direct losses of the company's directors and officers, who are the insured parties under this coverage. Direct losses include defense costs, settlement fees, or judgments that the company is incapable of indemnifying them for because of bankruptcy or other related issues.
Side B: The company's reimbursement comes from this "side." Should the business experience losses due to claims made against directors or officers, their D&O coverage will protect and reimburse them.
Side C: Any claims against the company itself are covered by "side C," which will cover the losses incurred.
There are various details of what directors and officers does and does not cover, but generally, look for a policy that covers:
The organization's assets
The personal assets of directors and officers and their partners'.
On average, a D&O lawsuit costs companies about $697,000 per incident, which includes judgments, settlements, fines, and legal fees. Failure to obtain proper D&O coverage could be financially devastating to a company, as well as its directors and officers.
Non-profits can also benefit from investing in a D&O Insurance policy, as it helps cover the defense costs, settlements, and judgments arising out of lawsuits and wrongful act allegations brought against a nonprofit organization.
The overall cost of D&O Insurance can vary depending on a few factors.
Some of these factors are:
Size of the company
History of past claims
Mergers and acquisitions activity