What Does Directors and Officers Liability Insurance Cover?

Directors and officers liability insurance, often referred to as “D&O” insurance, is designed to protect the personal assets of the company’s leaders and comes into play if they are personally sued for actions taken on behalf of the company.  As Miami insurance law attorneys, we are experienced in representing our clients in Directors and Officers Liability Insurance Disputes.  Company leaders can be sued for a variety of reasons ranging from allegations of financial mismanagement to negligent business decisions, and are frequent targets when shareholders, customers, vendors, suppliers, employees, creditors and other parties are displeased with the company’s actions.

Individual Director and Officer Coverage and Corporate Entity Coverage

A typical D&O policy includes several elements (referred to as “sides”).  Side A protects a corporation’s directors and officers for loss arising from claims against them when the company cannot indemnify them.  Side B reimburses the company when it indemnifies the individuals.  Side C, also known as “entity coverage,” eliminates disputes over coverage allocation when both the directors and officers and the insured organization are named as co-defendants in a securities lawsuit.

Claims That May Target Company Leadership

Business leaders can be held responsible for a company’s failure to comply with regulations and to provide a safe and secure workplace.  Additionally, if a company is found liable for losses because of operational failure and mismanagement, directors and officers may be exposed to liability as well.  Types of claims include:

• Shareholder suits over company or stock performance;
• Creditor or investor suits over mismanagement or dereliction of fiduciary duties;
• Misrepresentation in a prospectus;
• Decisions exceeding the authority granted to a company officer;
• Employment practices and HR issues; and
• Cyber liability.

Typical Exclusions

D&O policies frequently contain a myriad of exclusions that insurers will attempt to invoke to avoid paying claims, including:

• Breach of contract: Coverage may be excluded for claims arising from breach of a written contract.
• Personal injury or property damage: Most D&O policies exclude claims arising from bodily injury, sickness, disease, death of any person, or for damages to or destruction of any tangible property.
• Dishonest, fraudulent or criminal acts: D&O policies are intended to cover negligent or reckless conduct, not intentional, fraudulent or criminal acts.
• Personal profit of the directors and officers: D&O policies typically exclude claims attributable to the D&O’s gaining any personal profit or advantage to which they were not legally entitled.
• ERISA: Most D&O policies exclude claims for violation of ERISA or similar provisions of any federal, state or local statute or common law.
• Insured v. insured: D&O policies were never intended to provide a source of recovery for one insured suing another insured.
• Other insurance: The D&O policy is designated to be excess of other insurance and will not provide coverage until the limits of any other primary insurance are exhausted.
• Pollution: D&O policies exclude claims arising from seepage, pollution or contamination.

Let Our Miami Insurance Law Attorneys Help You

If you are involved in a coverage dispute involving a claim under a D&O liability insurance policy, we welcome you to contact Ver Ploeg & Marino at (305) 577-3996. 

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