What is D&O?
Directors and Officers Liability Insurance (often called D&O) is liability insurance payable to the directors and officers of a company, or to the organization(s) itself, to cover damages or defense costs in the event they suffer such losses as a result of a lawsuit for alleged wrongful acts while acting in their capacity as directors and officers for the organization. Such coverage can extend to defense costs arising out of criminal and regulatory investigations/trials as well; in fact, often civil and criminal actions are brought against directors/officers simultaneously. It has become closely associated with broader management liability insurance, which covers liabilities of the corporation as well as the personal liabilities for the directors and officers of the corporation.
Under the “traditional” D&O policy applied to “public companies” (those having securities trading under national securities exchanges), there are three (3) insuring clauses. These insuring clauses are termed:
Insuring Clause 1 (Side-A); Insuring Clause 2 (Side-B); and Insuring Clause 3 (Side-C).
Side-A (Insuring Clause 1) provides coverage to individual directors and officers when not indemnified by the corporation (as a result of state law or financial capability of the corporation) Side-B (Insuring Clause 2) provides coverage for the corporation when it indemnifies the directors and officers (corporate reimbursement) Side-C (Insuring Clause 3) provides coverage to the corporation itself for securities claims brought against it.