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Directors & Officers Liability (D&O)

Directors & Officers Liability (D&O)

Insurance that provides coverage for members of boards of directors against “wrongful acts,” which might include actual or alleged errors, omissions, misleading statements, and neglect or breach of duty on the part of the board of directors.

A type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer. D&O liability insurance can be written to cover the directors and officers of for-profit businesses, privately held firms, not-for-profit organizations, and educational institutions. In effect, the policies function as “management errors and omissions liability insurance,” covering claims resulting from managerial decisions that have adverse financial consequences. The policies contain “shrinking limits” provisions, meaning that defense costs—which are often a substantial part of a claim—reduce the policy’s limits. This approach contrasts with commercial general liability (CGL) policies, in which defense is covered in addition to policy limits.

Other distinctive features of D&O policies are that they: (a) are written on a claims-made basis, (b) usually contain no explicit duty to defend the insured (when covering for-profit businesses), and (c) cover monetary damages but exclude bodily injury (BI) and property damage (PD).