Risk & Business Magazine Sterling Insurance Spring 2017 | Page 8

D&O INSURANCE
The Often Misunderstood
Importance Of Directors &
Officers (D&O) Insurance
D
irectors and Officers (D&O)
insurance policies are meant
to help cover company
directors and officers from
claims based on decisions
they made during their regular course
of duty with a company. The reasons to
purchase a policy of this type are varied
and need to be understood by potential
purchasers. Who and what is covered is an
important aspect of this decision, and the
needs of every company are not the same.
While some policies are standardized,
many others are customized to handle the
unique needs of individual companies.
These policies cover not only the
personal liability of company directors
and officers but also the insured
company in the event of a payment to
a third party on behalf of managers.
That coverage comes in the form of
reimbursement for funds paid out. For
companies listed as stock companies,
coverage can also be purchased for
claims stemming from accusations
of wrongful acts in connection with
securities trading. D&O insurance
coverage, however, is not limited to large
companies. While it is essential for large
multinational companies to carry this
type of insurance, smaller companies
are also at risk for the same liabilities.
Small- and medium-sized companies
are showing an increased demand for
D&O coverage, and with good reason.
While D&O insurance provides financial
protection to directors and officers for
alleged “wrongful acts” or actual issues
arising from the scope of their normal
duties, there are a number of things which
are not going to be covered. Most of them
are obvious; some of them are not.
The most common exclusions to
8
D&O policies include the following:
•
•
•
• Noncompliant acts done intentionally
•
•
• Fraud
Property damage
Bodily harm
Legal action already underway
at the start of the policy
Illegal remuneration
Claims made under a previous policy
or covered by other insurance
“WHO AND WHAT
IS COVERED IS AN
IMPORTANT ASPECT
OF THIS DECISION,
AND THE NEEDS OF
EVERY COMPANY
ARE NOT THE SAME.”
To put it in plain terms, the things that are
not covered by D&O insurance are usually
the result of fraud or criminal acts.
The reasons to have a D&O policy are
numerous, and the most glaring and
important is that directors and officers
are human. They will make mistakes.
And when they do so in the course of
their work, they can be held personally
liable for those mistakes. This impedes
their ability to be efficient at their
job because they are forced to make
choices which could impact not only the
company that they are working for but
also their own financial well-being.
The increasing complexity of modern
businesses usually necessitates the
involvement of experts in the area
of insurance to ensure all liabilities
are covered. After all, this is a time
when a small two-person shop can be
a retail supplier on an international
scale thanks to the wonders of
e-commerce. When the stakes are
high, it’s better to be safe than sorry.
If you would like a review of your risks, or
to find out more about D&O insurance,
please contact us at sterlingagency.com. +
BY: SCOTT MCINERNEY
STERLING INSURANCE
Scott McInerney has been in the
Insurance Industry for just over 15 years.
His primary focus is on providing Risk
Management strategies to clients within
the Manufacturing, Construction,
Human Services, and Marina sectors.
Scott is a Certified Risk Architect as
well as a Certified Authority on Workers
Compensation. Scott loves working with
clients to improve their Risk Profiles while
providing the proper coverage to protect
all aspects of their business. Contact him
at smcinerney@sterlingagency or (586)
685-0134.