When someone becomes a director in a business, they assume a higher level of risk. That’s because managers, directors and other officers sit in much more powerful positions.
This added risk often merits higher levels of insurance coverage. A business’ commercial insurance policies often come with perfectly acceptable levels of liability insurance. This liability insurance can help protect the business should the organization’s actions harm someone.
However, a simple liability policy may not be enough to cover all the risks faced by directors. Often, businesses should invest in more comprehensive forms of business liability coverage. One of these specific liability policies is directors & officers coverage (D&O insurance).
What is D&O coverage?
D&O liability insurance helps cover risks faced by business directors and other decision-makers. These risks may differ from those in the generalized liability insurance policy.
There are unique risks that managers and officers face in a business setting. Proper workplace ethics need directors to make informed decisions in a company’s best interests. Therefore, they take on a higher degree of responsibility for safe business operations.
Directors may make negligent mistakes that damage the business. These negligent actions may also lead to allegations of damages from clients.
When can D&O coverage protect a business?
Most directors work with the best interest of a company in mind. However, even the best of intentions can lead to mistakes and lawsuits. A business could suffer if someone makes an allegation against an officer.
If a manager or director was negligent or liable for a poor business decision, then D&O insurance can often help cover the cost of repairing the business.
D&O coverage can cover a host of scenarios where managerial decision-making plays a role. For example, it may help directors fight allegations that they caused financial losses.
Why you need D&O coverage
If someone makes a hasty decision, then consequences could follow. Reckless or uninformed actions by directors are often considered negligent from a business standpoint. This is usually regardless of if those actions were undertaken unintentionally.
Therefore, if your business or clients suffer because of a negligent decision by a director, then D&O coverage can usually help you.
However, there is a catch. A director may have to prove that he or she acted completely without malice or illegal intent. Don't let this happen to you. Always encourage strict codes of ethics in your business.
Every business should consider the benefits of D&O coverage. Avanti Associates can help you choose the policy that is best for you. Go online or give us a call at (914) 273-8511 for more information.