The purpose of this insurance is for protecting the personal assets of corporate directors and officers, and their spouses, in the unfortunate event they are personally sued by employees, vendors, competitors, investors, customers, or other parties, for actual or alleged wrongful acts in managing a company. A proper discussion of what contracts or obligations that exist will determine is this insurance is best fir for what is being sought as the insurance is built to respond for legal fees, settlements, and other costs. D&O insurance is the financial backing for a standard indemnification provision, which holds officers harmless for losses due to their role in the company. Many officers and directors will want a company to provide both indemnification and D&O insurance.
Lawsuits can arise for many reasons, below is a list of common reasons to consider D&O insurance:
- Breach of fiduciary duty resulting in financial losses or bankruptcy
- Misrepresentation of company assets
- Misuse of company funds
- Failure to comply with workplace laws
- Theft of intellectual property and poaching of competitor’s customers
- Lack of corporate governance
- Illegal acts or illegal profits are generally not covered under D&O insurance.