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02 Apr Directors and Officers Liability Insurance
Directors and Officers Liability Insurance provides financial protection for the directors and officers of business & operations in the event they are sued in conjunction with the performance of their duties as they relate to the company.
Directors and Officers Insurance is often confused with Professional Liability Insurance. The two are not synonymous; Professional Liability is concerned with performance failures and negligence with respect to the professional operations, professional workers, and professional services provided not the performance and duties of the board members and executive management.
When is Directors & Officers Insurance needed?
Directors and Officers Liability insurance is needed when a board of directors has been assembled. It is frequently made the requirement.
Investors, especially Venture Capitalists, will usually require that you show evidence of Directors & Officers Liability insurance as part of the conditions of funding your company.
Also having employees opens management up to employment practices lawsuits – which usually can be covered under D & O insurance.
Why Directors and Officers Liability Insurance needed?
Directors & Officers Insurance is needed because claims from stockholders, employees, and clients will be made against the company, AND against the directors of the company. Since a board member can be held personally responsible for acts of the company, most directors and officers will demand to be protected rather than put their personal assets at stake.
Secondly, Directors and Officers Insurance is needed because: Investors and members of the board of directors will not be willing to risk their personal assets to serve as a corporate director or officer, no matter how much they believe in the business.