D&O (Directors & Officers) insurance coverage is an important protection for all but the smallest private companies. Exposures are evolving and claims are increasing, putting the directors and officers of private companies and the companies themselves at greater risk. Private companies have some of the same exposures as public companies and non-profit organizations, but have unique exposures as well.
D&O insurance for private companies, typically packaged with EPL (employment practices liability) insurance, protects the directors and officers against legal judgments and related expenses resulting from allegations of wrongful acts committed in their individual capacity as directors and officers. EPL insurance covers the entity and its directors, officers and employees from claims arising out of employment. EPL claims typically result from wrongful termination, sexual harassment and discrimination, but other causes are typically covered as well.
A key driver for purchasing D&O insurance is to protect the personal assets of the entity’s directors & officers because directors & officers can be held personally liable if their negligent actions result in a loss to the corporation, its shareholders or interested parties. See GB&A here.
Because protection of the personal assets of directors and officers is so important, a special D&O product has been developed to increase directors’ and officers’ personal protection. Side A D&O insurance coverage, also called Side A Excess or Side A DIC, has become a mainstream insurance product ensuring that the private assets of the directors and officers are protected in the event that the organization’s D&O insurance policy is not available. This important coverage can be purchased separately from traditional D&O coverage, but is sometimes included as a separate coverage part and limit in private company D&O policy forms. See our prior post here and our website here.
Startups are a special situation where the purchase of D&O insurance is often deemed unnecessary. However, directors and officers will have personal exposure right from the beginning, and most individuals will not serve on a company board without this coverage. A recent article on insurance for venture capital funded companies touched on the need for D&O insurance (see here):
Any startup that receives an institutional investment (i.e. venture funding), especially if the investor takes a board seat, will likely be required to get directors and officers (D&O) insurance
The D&O market is currently very competitive, resulting in reduced premiums and broad coverage. It is not clear how long this will continue. An article in Insurance Journal (see here) noted that Fitch is not positive on the prospects for the D&O market:
Property/casualty insurers active in the [D&O] liability insurance market may have a greater difficulty in maintaining underwriting performance in 2018 as market pricing remains highly competitive and claims trends point to meaningful challenges ahead
D&O insurance can be complicated, but detailed, expert information is available. Our website (here) has more detailed information, and this article (here) from Bryan Cave provides a good summary of D&O coverage components. In addition, our experts can provide guidance and proposals for your particular situation.
Tennant Risk Services, a division of Worldwide Facilities, is a specialty wholesale broker and underwriting manager, and delivers expertise, markets and exemplary services to our retail insurance agent clients in the placement of professional liability and specialty insurance (E&O, D&O, EPL, Cyber Risk, Specialty). We excel at hard to place accounts.