What is directors and officers insurance? 

Leading organizations, including both businesses and nonprofit, presents certain risks. A senior leader might be held professionally responsible for an error they make, and they could even be sued for liability if the error is serious enough. To help protect against this risk, leaders of Vermont organizations may want directors and officers insurance.

Directors and officers insurance provides liability coverage that’s tailored to meet business and nonprofit leaders’ needs. Policies may provide both leaders and organizations with protection.

Who in Vermont typically gets D&O insurance?

Usually the people who get D&O insurance hold senior leadership positions. Most senior leaders of businesses and nonprofits in Vermont could benefit from having coverage.

For instance, this coverage is frequently used to help protect:

• Upper-level executives
• Presidents, vice presidents and directors
• Chairpersons and board members
• Trustees, treasurers and financial officers
• Others in leadership positions

If there’s uncertainty as to whether coverage should be purchased for a particular position, leaders and organizations can consult with an insurance agent who specializes in D&O insurance.

What situations does D&O cover?

D&O insurance addresses multiple situations where a senior leader may be personally liable due to a decision or action that negatively impacted their organization. Some situations that a policy might cover are:

• Misrepresentations
• Misleading statements
• Breaches of regulations or laws
• Decisions causing bankruptcy
• Misuse of company or nonprofit funds
• Overall lack of good corporate governance

While many decisions and actions are covered, every insurance policy has limits to its protections. D&O policies generally don’t cover illegal actions or misconduct that’s intentionally committed.

Are fiduciary breaches covered under D&O?

Fiduciaries have unique responsibilities that should be taken into account when selecting a D&O policy. Not all policies cover fiduciary breaches of responsibility, but some may offer protection specifically for fiduciaries.

A specialized D&O insurance agent will be able to help fiduciaries find the coverage that they need.

What do Side A, Side B and Side C mean in a directors and officers policy? 

Directors and officers policies often have Side A, Side B and Side C components. These indicate different protections:

• Side A: May give personal liability protection to the insured leader(s), especially if their organization can’t or won’t cover legal fees and settlements. For example, could be needed if the organization becomes bankrupt or financially insolvent.
• Side B: May give liability protection to the organization, by potentially covering legal fees and settlements that are owed because of a senior leader’s actions.
• Side C: May give publicly traded companies specialized securities-related protection; is less often used by private businesses that need entity coverage.

What expenses does directors and officers coverage pay if there’s a claim?

For eligible claims, D&O policies typically help pay legal fees, court expenses and settlements. This is consistent with most liability insurances.

How much do organizations pay for directors and officers coverage?

Organizations are often the ones to pay for directors and officers coverage. Although policies primarily protect leaders, leaders only need the protection because of their service to the organization. For this reason, businesses and nonprofits usually pay.

How much organizations pay for leaders’ coverage depends on several factors. A few are:

• Insured leader’s role within the business or nonprofit
• Industry, size and financial health of the business or nonprofit
• Selected Sides and other chosen protections
• Any previous D&O claims