What is directors and officers insurance?
Anyone who holds a senior leadership position within an organization accepts significant responsibility, and assumes some corresponding risk. For, they may be held liable if a decision or action negatively impacts their organization in a major way. Sometimes the consequences can go beyond being removed from a position, and even result in a lawsuit against one or more leaders. Directors and officers insurance may help shield senior leaders of Pennsylvania organizations from this type of risk.
Directors and officers insurance may give senior leaders specialized protection against covered lawsuits that are filed over their decisions or actions. It could help pay legal fees and a settlement.
When do senior leaders of Pennsylvania organizations need D&O insurance?
D&O insurance is something that most senior leaders should consider. It’s often used by leaders of both businesses and nonprofits in Pennsylvania, and those holding various high-level positions. For example, this coverage is frequently purchased for:
- C-level executives (CEOs, CFOs, COOs)
- Presidents and vice presidents
- Board members (Chairpersons and trustees)
- Corporate directors and officers
- Fiduciaries and treasurers
What kinds of decisions or actions does D&O insurance provide coverage for?
Depending on policy specifics, D&O insurance may apply to a range of decisions and actions that senior leaders take. Issues like the following might be covered:
- Misrepresentation or misleading statements
- Misappropriation of company funds
- Decisions that lead to bankruptcy or financial losses
- Breaches of fiduciary duties
- Poor corporate governance practices
Can D&O cover a breach of fiduciary responsibility?
While many D&O policies include coverage for breaches of fiduciary responsibility, this is something that should be confirmed. Some policies might not cover breaches, or require that an optional add-on be selected. This is something that an agent who knows D&O well can assist with.
What do “sides” mean in a directors and officers policy?
Many directors and officers policies contain sides. These are merely a way to denote different types of protection that might be provided. The following are the three main sides that policies are most likely to offer:
- Side A: Usually for personal financial liabilities of senior leaders. If a leader is sued and the organization cannot cover legal costs (e.g., due to insolvency or insufficient reserve funds), this coverage may help with attorney fees, court fees, and ultimately a settlement.
- Side B: Usually for corporate financial liabilities of organizations. If a business or nonprofit is sued because of a leader’s actions, this coverage may help with legal fees and a settlement.
- Side C: Usually for securities-related risks faced by public companies, although it might be used by private companies that are exposed to similar risks. This isn’t necessarily needed in all situations.
How is directors and officers coverage handled during a merger or acquisition?
A merger or acquisition brings additional D&O coverage considerations. The decisions leaders make can have an especially large impact, and they’re often complex decisions that could be challenged. Moreover, it’s generally important to make sure all leaders have the coverage they need throughout the full merger or acquisition process.
Before entering into either process, leaders and organizations should work closely with a specialized D&O insurance agent. An agent who has expertise in this specific type of liability insurance can help navigate coverage needs, and find a policy that’ll meet those needs.
Who typically pays for directors and officers coverage?
Even though directors and officers is largely to protect senior leaders, it’s often not senior leaders who actually pay for a policy. Since leaders only need coverage because of how they serve an organization, the organization frequently pays premiums.
Where can leaders and Pennsylvania organizations get directors and officers insurance?
For help finding directors and officers insurance in Pennsylvania, reach out to the independent insurance agents at Miller Financial Group. Our agents have worked with many senior leaders and organizations, and we’ll make sure you find the D&O coverage your organization’s leadership needs.
