Directors and Officers Insurance
Professional liability insurance that protects corporate directors and officers from personal financial loss when they are sued for alleged wrongful acts in their management capacity. This coverage typically includes legal defense costs and settlements or judgments, helping attract qualified leadership to company boards.
Example
“The tech startup's directors and officers insurance policy paid $2 million in legal fees when shareholders sued the board over a failed merger attempt.”
Memory Tip
Think 'D&O protects the decision makers' - it covers Directors and Officers who make big company decisions that could lead to lawsuits.
Why It Matters
Corporate leaders face personal liability for business decisions that can result in multimillion-dollar lawsuits. Without D&O insurance, qualified individuals might refuse board positions, and executives could face personal bankruptcy from business-related litigation.
Common Misconception
Some believe D&O insurance covers any corporate lawsuit, when it specifically protects individual directors and officers from personal liability, not the company itself. Others think company indemnification is sufficient protection, not realizing companies cannot always indemnify leaders in every situation.
In Practice
MedDevice Corp's CEO and three board members are sued by investors claiming they misrepresented clinical trial results, seeking $10 million in damages. Their $5 million D&O policy immediately begins paying legal defense costs of $300 per hour for four defense attorneys. After two years and $1.2 million in legal fees, the case settles for $3 million. The D&O policy pays the entire $4.2 million total cost, protecting the individuals' personal assets completely.
Etymology
Named directly after the corporate positions it protects - 'directors' who oversee company governance and 'officers' who manage daily operations, both facing personal liability for business decisions.
Common Misspellings
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Related Terms
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