Directors and Officers Liability insurance is a type of insurance that protects the directors and officers of a certain company from the financial costs associated with being sued for wrongful acts and management mistakes.

Also commonly known as D&O, this insurance policy aims to cover members of the management and the board of directors of the company from financial damages arising from claim actions made by shareholders, customers and even competitors for certain business decisions deemed to be mistakes.

D&O Protection

Many companies require D&O insurance primarily to protect the management and board of directors from financial claims made by employees, customers and stockholders of the company attributed to the business decisions made.

Every company is always under the risk of lawsuits and other similar cases from which their management may suffer from considerably if not protected.

D&O insurance is usually availed by the company itself for the benefit of its directors and managers. Some do it in order to attract and keep directors and officers in the company.

Some may consider the need to protect their officers and directors in order to allow their people to make important business decision without fear of backlash or being ruined for doing so.

Some companies, especially start-ups , avail of D&O Liability insurance because a lot of venture capitalists consider it as part of their requirement conditions for funding new companies.

D&O Misconception

A common misconception that people have with Directors and Officers Liability insurance is that it gives directors and officers of a company protection against liability for acts done intentionally.

But the case is actually opposite. D&O insurance does not cover acts and decisions made by directors and officers that are known to be wrong.

Negligence of duty may be covered by D&O insurance, but it does not cover intentional acts of wrongdoing by directors and officers of a company.