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Overview of directors and officers insurance coverage

On Behalf of | May 24, 2021 | Insurance Law

Many Southern California businesses, particularly those which are mid-sized or larger enterprises, will likely consider purchasing directors and officers, or D & O, insurance coverage.

Likewise, sizeable not-for-profit organizations also may want to have this coverage in place.

Basically, D & O coverage can meet three separate insurance needs.

First, the insurance can cover the officer or director herself if she gets sued personally because of her conduct in running the business. This coverage will kick in if the company is unwilling or unable to mount a legal defense for the officer.

The other two coverages protect the business. One protects the business from losses associated with the misconduct of the director or officer. The other coverage will cover the costs of a legal defense if the firm agrees to defend the director or officer from a lawsuit.

Different businesses may need different levels of coverage depending on their unique circumstances.

However, in general, D & O coverage is supposed to be there to protect a business, and individual leaders of that business, from having to pay a significant judgement on account of what could have been little more than an honest but nonetheless important mistake or oversight.

Insurance carriers may resist paying D & O claims

As is the case with other types of insurance, D & O insurance policies can be complicated.

These policies include a number of exclusions. For example, a D & O policy usually will not kick in if an officer does something criminal or fraudulent. Other types of exclusions also apply.

While it is important for business leaders to read these policies, unfortunately, sometimes insurance companies underpay or even wrongfully deny D & O claims.

In these cases, an experienced attorney may be able to help a business with a claim reach a satisfactory result.