D&O Insurance provides protection for directors and officers for private companies in the performance of their duties. Many consider D&O insurance as an errors and omissions (E&O) insurance for directors and officers. This insurance generally includes the following coverage:
- Employment practices liability – exposure having to do with employee relations.
- Fiduciary liability – exposure relating to monetary issues, such as savings, pension, profit-sharing, health plans, and employee benefits.
The largest exposure faced by directors and officers for private companies has to do with that part of employment practices liability dealing with discrimination and harassment suits. These have the highest likelihood of occurrence and the highest overall judgments against a company. In addition, clients should supplement their D&O insurance with an actual E&O policy, as the former covers management while the latter covers actual performance negligence with respect to products and services.
When to Get the Insurance
Mangers procure D&O insurance at the time they assemble a board of directors. In fact, this type of protection is often a requirement by most boards. Those seeking venture capital will also find D&O as part of the requirements for funding. Conservative managers will seek D&O insurance at the time they hire their first employee.
D&O protection allows directors and officers for private companies to protect the personal assets of both the manager and the board members. It allows managers to operate under the confidence of their protection.