When and Why is Directors & Officers Insurance Necessary?
When do I need Directors & Officers Insurance?
Directors and Officers Liability insurance is needed when a board of directors is assembled. A board of directors will frequently require directors and officers liability insurance. Investors, especially Venture Capitalists, will also usually require evidence of Directors & Officers Liability insurance as part of the conditions of funding a company. Also, having employees opens management up to employment practice lawsuits, which can usually be covered under D & O insurance.
Why do I need Directors and Officers Liability Insurance?
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 director 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 a board of directors will not be willing to risk their personal assets to serve as a corporate director or officer, no matter how heartfelt their belief in a company.
Lastly, employment practice suits constitute the single largest area of claim activity under D&O policies. Over 50% of D&O claims are employment practices related.