Public Directors and Officers D&O Insurance USA Guide

Public Directors & Officers Liability insurance, also known as D&O insurance, is as multifaceted as it is essential for small- to medium-sized organizations. While the following guide covers the high points of these extremely specialized policies for public companies, it is important to note that D&O coverage is vital for private and nonprofit organizations as well.

Directors and Officers D&O Insurance Basics

Directors and officers (D&O) liability insurance protects individuals from personal losses if they are sued as a result of serving as a director or officer of a public company. D&O insurance also protects an organization’s assets.

What is Directors and Officers D&O insurance?

Directors and officers insurance is an errors and omissions policy for upper management. It protects personal assets as well as the company’s and covers legal costs and settlement or judgments issued in a claim.

Is Directors and Officers D&O insurance necessary?

Litigation risk is at an all-time high, and any company that has investors or manages employees or products has liability exposure. Directors and officers are sued for a variety of reasons related to their company roles, including:

Breach of fiduciary duty resulting in financial losses or bankruptcy
Failure to comply with workplace laws
Fraud
Lack of corporate governance
Misrepresentation of company assets
Misuse of company funds
Theft of intellectual property and poaching of competitor’s customers

A comprehensive management liability program covers all of the above, plus cyber liability, fiduciary liability, employment practice liability (EPLI) and crime liability exposures.

When do I have to renew my Directors and Officers D&O insurance?

Check your policy for your renewal date or ask your broker, and while you’re at it, ask your broker these two questions:

What are the differences between Sides A, B and C of my primary D&O policy and exactly which Side covers what?
What is a Side A Only DIC policy? Please be specific.

If your broker cannot clearly and immediately answer and explain both questions, you need a different broker.

Is Directors and Officers D&O insurance the same as professional liability insurance?

They are similar. D&O insurance is liability insurance that covers senior management, directors and officers, as well as the company, for decisions made on behalf of the company. Professional liability insurance (also called E&O and malpractice insurance) covers errors or mistakes made in a profession that results in injury to a third party. For example, a hospital board might be sued if one of their doctors operates on the wrong leg; or a realtor makes a mistake on a title or property listing. The biggest difference between E&O and D&O is that public Directors & Officers Liability insurance policies cover Securities Class Actions brought by investors.

What does Public D&O insurance cover?

It primarily covers senior management for breach of fiduciary duties.

Does Public D&O insurance cover former directors?

No. Claims based on the wrongful acts of former directors occurring prior to the issuing date of the policy are excluded, unless coverage for prior acts was purchased.

Does Public D&O insurance cover employees?

Not as a rule. Public D&O insurance covers corporate directors, officers and their spouses. It is feasible that additional coverage could be added to protect key personnel.

What is the antitrust coverage under public D&O insurance?

Typically most public company D&O insurance coverage only extends to securities claims. Antitrust enforcement actions taken against the company would not activate D&O insurance coverage.

What does Public D&O insurance not cover?

Public D&O products and services vary from state to state, and as with other insurance policies, may have dollar-amount limits as to the various claims insured. Here is a partial list of exclusions:

Breach of fiduciary duty
Claims brought or maintained by one insured against another
Claims rising from wrongful acts that occurred prior to the issuing of the policy
Claims related to errors, omissions and negligence while providing professional services
Cyber-related claims
Claims arising from oral or written contracts, including vendor contracts
Fraudulent acts/crimes committed by executives

Any of these acts can destroy a company and expose directors and officers personally if all items in the D&O policy are not connected well.

Why buy Directors and Officers D&O insurance for a public company?

Carrying comprehensive D&O insurance is one of the best ways to protect your company’s bottom line and the assets of your board of directors and officers against lawsuits. It’s a big plus when it comes to attracting and retaining qualified directors and senior management. It also impresses investors and gives decision-makers confidence to act strategically to grow the company.

How much Public D&O insurance do I need?

The amount of coverage depends on your company’s industry, income, debt and legal history as well as the net worth of your board members and officers.

What is the average cost of Public D&O insurance?

The cost of D&O insurance varies widely and depends on your industry, company financials and stock performance. Just to give you an idea, here are a few best-case scenarios:

Private companies: $8,000 to $12,000 per year for each $1 million in coverage.
Public companies:
- Under $100 million in market capitalization: from $20,000 to $25,000
- $100 million to $500 million in market cap: $50,000 to $75,000 for first million
- $500 million market cap plus: $100,000 to $125,000 for first million

The best idea is to talk in-depth with a knowledgeable broker who has a proven track record providing management liability insurance to public, private and nonprofit companies.