Even if you think you have the most solid and upstanding directors and officers on your board of directors, a lawsuit can strike at any time. Shareholders may sue if the company isn’t doing as well as promised or possibly someone misread local pollution ordinances. When a lawsuit comes after your company’s leadership, directors and officers (D&O) insurance can protect them. Read on to learn more about this type of insurance in-depth, how much it costs and where you can find it.
- Top 5 Providers of Directors and Officers Insurance
- Finding Directors and Officers Insurance Quotes Online
- What is Directors and Officers Insurance?
- How Much Does Directors and Officers Insurance Coverage Cost?
- What Benefits Should You Consider for Directors and Officers Insurance?
- Do Small Businesses Need D&O Insurance?
Top 5 Providers of Directors and Officers Insurance
Below we’ve listed some of the top options for finding D&O insurance.
- Foundershield: Specializing in startups
- Dumont: Excess coverage
- HUB International: Comprehensive coverage
- Travelers: No-fuss plan with help from a face-to-face local agent
- AIG: Specialized products offering added coverage
Foundershield – Specializing in startups, especially high-growth ones
This company specializes in offering digital insurance products for high-growth companies. As such, it offers comprehensive directors and officers insurance, clearly outlining the difference between sides A, B and C.
In order to get a quote, you have to create a profile with the company. The system requires that you upload recent annual financial statements, so for this reason we were not able to get a quote.
Dumont – Best for Excess Coverage
You can also find D&O insurance here. The company offers excess side A insurance as well, for if you need to broaden coverage. There’s a place to request a free quote by entering in contact information, at which point it simply tells you the message was sent successfully. The system then auto-emails you an application.
HUB International – Comprehensive Coverage
This company has a comprehensive directors and officers insurance plan covering personal asset protection, claims protection, and workplace and employment protection. In order to get the process started, the company wants you to fill out a contact form so a representative can get back to you.
Travelers – No-fuss plan with help from a face-to-face local agent
Travelers also advertises that you can find D&O insurance through them. The plans are no-fuss options that help cover defense costs and damages. In order to find a quote, you must talk to a Travelers agent.
AIG – Specialized products offering added coverage
AIG offers several different products to fit custom needs. There’s the primary D&O coverage that offers direct entity coverage. Side-A Select offers additional coverage like added limits. There’s also Side-A Match Edge for further added coverage. To get the process started, you must submit a form so someone can contact you.
Finding Directors and Officers (D&O) Insurance Quotes Online
To find quotes, we put in a tech corporation with $100,000 in annual revenue and 5 employees.
We tried CoveWallet, but at the end of the quote process, we got a message saying an online quote could not be generated and we had to call a phone number. With how intricate this type of insurance is, this makes sense.
What is Directors and Officers Insurance?
It’s easy to assume that when a lawsuit strikes, it will only affect the business itself. However, individual officers and directors of a company may be at risk for financial losses. So that’s where directors and officers insurance (or D&O insurance) comes into play. In short, this type of insurance covers officers and directors individually while they are serving in those roles. However, it doesn’t stop there.
Foundershield, a digital business insurance broker that specializes in D&O insurance, outlines the history of D&O policies. They used to protect the personal assets of the leadership of a company. Now, companies can indemnify executives against claims and then get reimbursement from directors and officers insurance policies. Also, if a suit is brought against a company itself, these policies can protect the entity and leadership individuals.
Further, some policies extend to employees and volunteers beyond the board of directors. Such individuals that could be covered include employed lawyers, scientific advisory boards, and external advisors.
According to the Insurance Information Institute (III), there are actually three main components in most of these policies, broken down into what are known as “sides.” They are:
- Side A: Covers a corporation’s directors and officers when a company can’t indemnify the individuals.
- Side B: Once an organization indemnifies the individuals, this side reimburses the organization.
- Side C: This one is a little more complicated. When the directors and officers and the insured organization are named as co-defendants in a securities lawsuit, this does away with the disputes of coverage allocation. It’s also known as entity coverage.
Policies like these typically cover claims like shareholder suits pertaining to how a company or stocks are performing, pollution, failing to abide by regulations and even cyber liability, as a few examples.
However, it’s important to look into each policy, as there can be many exclusions, such as fraud or personal profiting.
How Much Does Directors and Officers Insurance Coverage Cost?
This type of insurance isn’t like other types, where you may pay around $50 per month for a policy. Because losses when leadership of large organizations get sued can be great, directors and officers insurance can cost in the tens of thousands of dollars.
D&O insurance can cost from $6,000 to $52,800 in annual premiums. These vary drastically based on the deductible and how much annual revenue a company pulls in.
What Benefits Should You Consider for Directors and Officers Insurance?
D&O insurance can operate under some different terminology than other insurance types. For insurance, the deductible is often called retention. But unlike other insurance types, annual premiums tend to go up along with retention levels, according to Foundershield.
You’ll also have to assess the payout limits you will need to carry. Directors and officers insurance is interesting in that you can purchase excess limits that increase overall limits. These are usually purchased separately to augment original plans when an insurance company won’t increase limits.
Do Small Businesses Need D&O Insurance?
At this point, you may be wondering what this all has to do with your small business. After all, many small businesses are not publicly traded, so it’s common to assume D&O insurance does not apply to such small businesses, since they are not exposed to securities class action suits.
However, an article in Inc. summed it up well: even privately held companies can still have their directors or officers sued. The lack of shareholders doesn’t preclude lawsuits. In short, if you’re a large enough company to have directors and officers, you’re large enough for directors and officers insurance to apply to you.
Losses from lawsuits against leadership can also potentially bankrupt a business. Foundershield listed costs ranging from $394,000 to $17 million. According to Foundershield, even if you don’t have investors, “Competitors can make allegations such as unfair trade practices, tortious interference or fraud allegations that aren’t covered by a general liability policy.”
Directors and officers insurance can also help attract quality leadership. It may seem counterintuitive. After all, why worry if no one would do anything wrong? But high-quality leaders will take your business more seriously if you make the effort to insure and protect them. Claims can happen even when everyone thinks that they did everything correctly and by the book. All it takes to start a lawsuit is for someone else to think you did something wrong, whether you did or not.
Frequently Asked Questions about Directors and Officers (D&O) Insurance
What does a D&O insurance policy cover?
D&O insurance covers in the event that someone submits a claim against the leadership of a company when they are serving on the board of directors. Many policies can cover both the corporate entity and the individual leaders.
Is D&O insurance necessary?
If your business has directors and officers, you should consider looking into D&O insurance. When someone tries to sue your leadership or corporation, that’s where D&O insurance can offer protection.
How much D&O insurance do I need?
Talk to an insurance agent about coverage types and what works for your business situation. Directors and officers insurance is one of the more complicated types of business insurance out there. You need the right coverage for your situation. For instance, you need to consider sides A, B and C, which affect what is all covered.
Why is D&O insurance important?
Directors and officers insurance covers the entity and individuals in case a claim is filed against the leadership of the company. A large enough payment in damages could bankrupt companies or individuals. D&O insurance covers this risk.
- Directors and officers insurance protects individuals and entities from lawsuits that target the leadership on the board of directors.
- D&O insurance can cost thousands of dollars, since it is usually used to cover large potential losses for companies large enough to have a board of directors.
- Like any insurance, this type of insurance is dictated by the deductible and payout limit amounts.
- Even small, private businesses with directors and officers should consider this type of insurance, since they could get sued, as well.
- Top five companies to find this type of insurance are Foundershield, Dumont, HUB International, Travelers and AIG.
- This type of insurance requires talking to an agent or rep to get a quote, since it’s a high-end and complicated insurance type.