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Readers Blog: Wisconsin Insurance Solutions

Am I too small for Directors and Officers coverage?

By: Tony Matera / twitter @WI_InsSolutions

No longer a boutique coverage offered to round out high level corporate insurance accounts Directors and Officers Liability Insurance (D&O) is something all business and non-for-profit organizations need to ask their agent about.  D&O coverage is an essential part of managing your organization's insurance risk portfolio in today's litigious environment. If you want to attract the top talent to lead your company's future you need to be able to let them know you can protect them from law suits.

So what is D&O?

Today's Directors and Officers are more than a prestigious title and rubber stamp approval of management. With the downturn in the nation's economy and stock market Directors and Officers are under close scrutiny for the decisions they make. They are held to a high standard and have legal responsibilities to shareholders, investors, creditors, employees and others. The public is increasingly holding them responsible for the day to day operations of the related companies.

Directors and Officers are held accountable for developing strong corporate policies and procedures and for monitoring management's implementation of such procedures. Including decisions on investment management, 401K plans, release of non-public information, conflicts of interest, hiring and firing decisions, corporate policies regarding discrimination, sexual harassment, benefit plans, merger and acquisition activity just to name a few. That's a lot of liability and D&O offers coverage for their decisions.

Each carrier offering D&O typically do not have a blanket form. They have developed specialized D&O policies for specific industries that have unique set of exposures. But there are some standards your agent should review before purchasing D&O for your company.

  1. Policy Limits/ Deductibles
    Standard limits for most small to medium sized organizations start at $1 million, with an average of about $5 million. Just like your general liability policy there are occurrence limits and an aggregate limit. Unlike your General Liability policy D&O claims do carry with them a deductable. The higher the deductable the lower your premium costs. Most D&O deductibles start at $10,000.
  2. Claims Made Coverage
    Most D&O policies are written on a claims made basis not on occurrence. Claims Made coverage will respond to incidents arising on or after the policy retroactive date and which are reported during the term of the policy only. However most carriers due offer an extended reporting period or tail coverage for additional premium.
  3. Who is covered?
    When evaluating policies make sure that each director and officer is listed individually and that the company itself is also listed. Many policies only list the officers and unless requested will not include the company.
  4. Does your Policy Segregate Defendants?
    If the answer should be yes. This is a major benefit to purchasing a D&O policy. Like General Liability policies most D&O policies will exclude coverage for Fraud or other Criminal Activities. However it should provide defense for the Company and other innocent parties that will be pulled into a lawsuit due to a criminal action of someone else. Without a segregation clause, the innocent parties will be without any coverage if one of the other D&O's or even an employee commits a criminal act.
  5. Other things to consider?
    1. Do your By-Laws indemnify the D&O?
    2. Policy cover fines, penalties and damages or just defense cost?
    3. Is Employment Practice Liability included

Directors and Officers are straddled with the tremendous responsibility of making day to day decisions that affect the lives of many people. With an unclear view of the changing corporate landscape, The future of Health Care benefits, the struggling stock market (401K plans), companies looking to attract the top talent for their boards need to be able to protect their Directors and Officers, this coverage offers that security.

If you haven't already done so I highly recommend you ask your insurance advisor if D&O coverage is right for your risk management portfolio.

Tony Matera is a licensed independent insurance advisor with Ansay and Associates out of Port Washington WI. And is the Servicing Agent for ONMILWAUKEE.COM For more information contact him at or call directly at 262-376-3248

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