How Much D&O Insurance Do You Need?

Why do Insurance Professionals, Real Estate Professionals or other Company Owners need D & O Coverage?  

I have E & O, so why would I want D & O?  My licensed services mistakes will be covered under my Professional Liability Policy.  Professional Corporations may have shareholders, (family members, friends, or outside parties) that own an interest in the Corporation.  You may have executives that serve as Officers of your Corporation.  This coverage is protecting the personal assets of the people you care about most.  D & O claims may not be as frequent, but when they do occur, they are severe.  There are claimants lurking that can include your vendors, your suppliers, and even regulators. Your company may have to go into bankruptcy due to an accident in a car, a shooting, or other catastrophic event.   With the correct D & O coverage, the executives can still have legal coverage when assets of the corporation are impaired. 

Your professional liability policy only covers mistakes that you made in regard to delivering professional services provided to a third party/customer.   These services are specified in your E & O policy.  Your E & O policy is not geared to handle unlicensed activities 

What’s D&O Insurance

Directors and Officers coverage extends to the decision makers within companies.

A president  or other officer could, at any time, make a significant mistake that harms the company or customers. As a result, the affected parties could sue the officers, or request other compensation for their losses. With D&O coverage, the parties at fault can use the policy’s payouts to compensate others. It might also cover legal fees resulting from lawsuits. D&O insurance essentially functions as liability insurance. It’s there to help someone in case they accidentally harm someone else.

A specimen  D & O claim definition may read:

Claim means:

1. A written demand for monetary damages, nonmonetary damages or injunctive relief; or
2. A civil proceeding commenced by service of a complaint or similar pleading; or
3. A criminal proceeding commenced by a return of an indictment; or
4. An administrative or regulatory proceeding commenced by the filing of a formal, written notice of charges, notice of violations, notice of investigation, cease and desist or similar action; or
5. An arbitration proceeding seeking monetary damages; or
6. A written request to toll or waive a statute of limitations relating to a potential civil or administrative proceeding; against any Insured for a Wrongful Act, including any appeal there from. 

How Much Coverage Do You Need?

Let’s say that a group of customers accuse the  president of misuse of company funds. They bring a lawsuit against that individual, personally. Whether the allegations are true or not, substantial legal action might cost the company, and the individual, massive amounts of money. Any resulting settlements might raise that bill.

Simply put, these allegations could prove costly. And if an executive doesn’t have the coverage of D&O protection, they might face personal ruin. Personal finances, assets and security might come under fire should the executive in question have to pay up. That doesn’t have to occur with D&O insurance.

In 2016, the average D&O claim was for $387,000, and typical claims might run into the millions of dollars. Therefore, executives in search of coverage should insure themselves to the highest degree to protect the company’s assets. It would not be a good idea to carry coverage limits less than these assets, because they might destroy the agency’s finances, not to mention the executive’s own. Policies generally start with up to $1 million in coverage, though some agencies might be able to find policies offering up to $10 million.

Many types of businesses do not even explore the need to have a policy.  Most policies for D & O can start as low as $2,000 per year for limits of $500,000 or $2,500 for limits of $1,000,000   D & O pricing is based on asset size and new start up’s can qualify.  Just think if you are unable to defend the individuals that are serve your corporation.  Financial ruin can occur to your most valuable talent. 

 Therefore, don’t let your corporation go without coverage, our professionals are here to help you run your business. Give us a call at 800-460-6424 today.

Also Read: Preventing Misuse of Company Funds in Your Agency