What is board of directors insurance?

Board of directors insurance is a risk management option for the liabilities related to the decisions made by either a board of directors or officers who have been appointed by board members. Because of the covered risk categories, it is sometimes referred to as management liability insurance. As a policy, it insures against claims or accusations of funds mismanagement as well as failing to perform official duties or to meet regulatory requirements. In addition to protecting those working on the board, a liability policy can also provide coverage for spouses in the event an investor, customer, competitor, employee, vendor, or other parties allege claims of wrongful acts committed.

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When do I need to be aware of board of directors insurance?

This insurance policy protects the interests of the company and those that oversee important decision-making, proving funds to pay for legal fees, court-issued settlements, and other litigation costs. It also holds the resources for standard indemnification provisions, keeping officers from being held personally responsible for losses that take place. Any lawsuit alleging breach of fiduciary duty, misuse of company funds, misrepresentation of company assets, fraud, theft of intellectual property, or lack of governance is generally included in the coverage.

What is important to know about board of directors insurance?

All companies, whether a non-profit or corporate entity, are at risk for directors and officer lawsuits. Coverage can be extended to both criminal or regulatory investigations, as civil and criminal legal action often occurs simultaneously. There are some other important items you should know about board of directors insurance:

Board of directors insurance provides dual coverage, protecting against personal and company losses.
Insurers may avoid paying out on a policy if the company has been found to misrepresent or misconstrue important information.
Policies can be written to address specific risks, with many insurers excluding protection in instances of illegal profits, criminal activity, or fraud.