What is directors and officers insurance?

D&O insurance protects the interests of a company and those that oversee its important decision-making, providing funds to pay for legal fees, including investigation and extradition costs, as well as court-issued settlements, and other litigation costs. It also holds the resources for standard indemnification provisions, keeping a commercial officer or director, as well as his or her spouse, 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, whether the claim was actually or allegedly wrongful. It does not typically cover illegal acts or claims of illegal profits. Someone who might sue a director or officer could include investors, vendors, employees, customers, competitors, and a variety of other individuals.

D&O insurance is comprised of three separate core coverages called Side A, Side B, and Side C:

• Side A covers claims against directors and officers not indemnified by the company
• Side B reimburses the company when it does indemnify officers and directors
• Side C, which is sometimes called entity coverage, provides coverage for loss to publicly traded companies for securities claims and for all risks of privately held and not-for-profit companies unless specifically excluded.

Synonyms for directors and officers insurance
There are some instances when you might hear directors and officers insurance referred to as something else. While there’s not much difference between them, you should know about the following synonym:

• Directors and Officers Liability Insurance: You might hear someone refer to this insurance coverage as directors and officers liability insurance. Adding “liability” to the item ensures individuals understand what type of coverage it is.