What is Directors & Officers Liability Insurance and what is covered? There seems to be confusion among insurance consumers as to how a Hollywood Directors & Officers Liability policy differs from a General Liability policy and a Professional (Errors & Omissions/E & O) Liability policy. This is understandable as the word “liability” appears in each policy form.
The General Liability policy protects you from claims arising from your business operations such as premises you own or occupy, your products and completed operations and advertising injury liability.
The Professional Liability policy will insure you against Errors and/or Omissions you make without intent because let’s face it – everyone makes mistakes. So what does the Directors & Officers Liability policy cover?
Definition – A Directors & Officers Liability policy – simply stated – provides protection for Directors & Officers against acts, real or alleged, committed in the scope of their duties or position. This has a wide breath of coverage. Coverage can be triggered by acts stemming from wrongs committed against employees, stockholders or customers of the company.
Who needs it? – Any company, business or organization whether Public, Privately held or a Not for Profit organization. In the absence of a Directors & Officers Liability policy a director or officer can be held liable for acts of the company in which he or she holds a position that is called into question. The lack of this coverage can easily erode the personal assets of the individual. Wherever a Board of Directors exists this coverage is necessary.
What is covered? – Again the coverage is very broad. The claims against the California Director or Officers can be criminal or civil, brought by an individual or a class action suit. It can be caused by an out and out misleading statement about the company, an omission about the company state of affairs, misappropriation of funds and even the failure to make a sound financial decision that would work to the best interest of the company and its shareholder or investors. The company will pay for defense costs that may be included in the policy limit thereby diminishing the amount of funds available to pay a financial settlement.
What is not covered? – Punitive damages or fines may or may not be covered. Look to the exclusion section of your policy to see if there is any excluded coverage that you want to have and can buy back.
What does Side A cover? – When purchasing a Directors & Officers Liability policy the buyer, often the controller of the company should know whether or not the corporation or organization is legally responsible to protect their individual directors or officers. If the company is not responsible or if there is any uncertainty Side A coverage should always be purchased. This coverage provides direct indemnification to the directors and officers for acts for which the corporate organization is not legally required to indemnify them but for which they are responsible.
The Directors & Officers Liability policy is a “claims made” policy. To trigger the coverage the policy must be in effect at the time the claim is made.
Never non- renew or cancel a Directors & Officers Liability policy without guidance of your professional agent at EZ Center Insurance Services.