All companies need liability insurance to protect them from lawsuits, from general liability to specific liability coverage depending on their services, locations, and products. While legal action is often directed at the company, it can also be directed at those key individuals who make and enact decisions and policies. When these individuals are targeted by internal or external lawsuits, it's not covered under a company’s standard liability insurance. As such, it falls to the company to pay for the legal costs when their directors, officers and other key individuals are targeted by lawsuits in the course of their duties for the company.
D&O Insurance: The Basics
The solution for this is Directors and Officers Liability Insurance, also known as Directors & Officers Insurance or simply D&O Insurance. These policies are designed to allow a company to protect its key employees without having to bear these legal costs. D&O Liability Insurance provides funds for advancement or for reimbursement of legal costs due to legal action brought against directors and officers.
Who is Covered Under Directors & Officers Liability Insurance?
The primary coverage for Directors and Officers Insurance is the titular two: directors and officers. Depending on where you work, the exact titles may differ, but these two groups represent a company's executive management. These top-level employees are the ones who can make large-scale changes that can affect the entire company, in terms of both its profitability and liability. They also tend to have larger personal assets to be targeted in lawsuits. Since these individuals have the highest risk of liability, they are often foremost on a D&O policy.
Director of a Company
Directors are typically in charge of overseeing the company’s mission, policies, and objectives, appointing officers of the company and reviewing them, and determining budgets and reviewing them. These directors have complete control over a company at almost any level and are typically formed as a board. This board of directors acts on behalf of the shareholders or owners of the company, and since they are elected or appointed by these people, they are accountable to them.
Officer of a Company
The title of 'Officer' covers a broad range of executives. Most companies will contain one or more of the following: a president, at least one vice president, a secretary, and a treasurer. While their specific duties and responsibilities differ, their primary function remains the same: operating the enterprise effectively.
Additional Positions
For most companies and organizations, those listed above as Directors and Officers carry the most at risk. However, there are other specific individuals who may also be targeted, and therefore, they should be protected under Directors and Officers Insurance as well.
Committee Members
Members of a committee, regardless of their position within the company, can find themselves in a position where they have enough power or influence in the company that they can be targeted, just like executives. An example would be those committee members on a Homeowners Association board, such as for condos.
Volunteers
Especially in nonprofit organizations, individuals who volunteer can take on high-responsibility positions. While volunteers are not employees of a company, they still need to be covered by the company or organization, especially if these volunteers have sizable assets to be targeted.
Trustees
A trustee is an individual who is given responsibilities or the power of administration over assets or property that are “in trust.” When an individual is a trustee within or on behalf of your company, it’s important to protect them.
Key Employees
Finally, you may have specialized employees who run a higher-than-average risk of being targeted due to having a great amount of control within their field on behalf of the company. An example might be individuals who make employment/hiring decisions. 
Why Individuals Are Targeted
As aforementioned, a company is usually considered a better target for a lawsuit than an individual. However, there are reasons that an individual within the company may be targeted instead of the company itself. Below are some reasons an individual might be targeted within your company (and that D&O insurance protects against).
- Errors or Omissions: If a legal argument against your company stems from an individual’s mistake, the lawsuit could target that individual.
- Employment Decisions: In circumstances such as employee termination or denying employment, an individual could be accused of unfair employment practices.
- Unlawful Acts: If an employee is accused of involving the company in an illegal act that they committed, such as by using company funds, property, or influence, they could be sued for unlawful acts.
- Erroneous Investment: If an individual in the company invests company funds poorly or carelessly, they may be targeted by investors or stockholders.
- Conflict of Interest: This reason for a lawsuit occurs due to an employee's personal or business connections or knowledge wherein their judgment is arguably corrupted or biased by their secondary interest.
- Release of Information: If an individual released (or caused the release of) confidential information of third parties such as business partners or clients, they may be the target of a lawsuit.
- Gross Negligence: As opposed to errors and omissions, gross negligence is a conscious and voluntary disregard for the lives and safety of others.
When it comes to protecting your company and the individuals within it, don't take any chances. Contact the professionals at World Insurance Associates to learn more about how D&O Insurance works and how to get coverage.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.