This type of insurance is particularly relevant to finance professionals who may hold executive positions within a corporation.

Below are some key points about D&O insurance:

  • Protection for Individuals: D&O insurance provides protection for individuals who serve as directors and officers of a company, including CEOs, CFOs, and members of the board of directors. It shields their personal assets in the event they are personally sued for alleged wrongful acts related to their roles.
  • Coverage for Legal Costs: D&O insurance covers legal defense costs, including attorney fees, court costs, and settlements or judgments if the D&Os are found liable in a lawsuit. This can be crucial, as legal defense expenses can be substantial.
  • Types of Claims Covered: D&O insurance typically covers a range of claims, including allegations of negligence, mismanagement, breaches of fiduciary duty, conflicts of interest, financial misstatements, and other acts or omissions related to their roles as corporate leaders.
  • Corporate Indemnification: Many companies indemnify their directors and officers, meaning they promise to cover legal expenses and losses. However, D&O insurance acts as an extra layer of protection, especially in cases where the company may not be able to fulfil its indemnification obligations.
  • Side A, Side B, and Side C Coverage: D&O policies often consist of three sides of coverage:
    • Side A: Protects individual D&Os when the company cannot indemnify them. This is the most crucial aspect for personal protection.
    • Side B: Reimburses the company when it indemnifies its D&Os.
    • Side C: Provides coverage to the company itself for securities claims.
  • Tail Coverage: D&O insurance can include “tail coverage” (also known as “run-off” coverage), which extends protection for a specified period after an individual D&O’s service with the company ends. This is important because lawsuits can be filed years after the alleged wrongful acts occurred.
  • Customizable Policies: D&O insurance policies can be customized to the specific needs and risks of a company and its directors and officers.

It provides peace of mind and financial protection in situations where legal claims or lawsuits arise in connection with their Key Managerial Personnel (KMPs).