Business is risky. Whatever size your company, managerial decisions may cause some major repercussions that can lead to the legal action of a third party, even if it was just a bad idea or honest mistake. Directors and officers (D&O) insurance can cover both the individual managers and the company itself in these situations. However, what claims can be filed and what exactly does D&O cover?
Types of D&O Claims
Various types of liabilities may cause individuals to take actions against directors and officers, even in cases where there hasn’t been any wrongdoing. HR issues and employment practices can lead to disgruntled employees, shareholders may sue due to loss from a poor decision or unavoidable changes in the economy, misrepresentation mistakes sometimes occur and frustrate individuals, and other similar problems can arise.
The Three “Sides” of D&O Coverage
This type of insurance policy typically has three “sides” that covers both individuals and the company as a whole.
- Side A covers individual directors and officers when the company is unable to compensate for loss.
- Side B covers the company when they are able to compensate for the loss of the individuals.
- Side C covers the company when they are named as a defendant in a claims case.
Essentially, D&O cover policies are able to make up for the costs of indemnifying or pay for the legal fees involved in cases.