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DIRECTORS AND OFFICERS (D&O)

Asset Protection

Directors and Officers (D&O) Insurance Explained

Directors & Officers (D&O) Insurance is a type of liability insurance that protects the personal assets of a company’s directors, officers, and executives if they are sued for decisions made in their official capacity. Corporations, Nonprofits, and private companies can benefit from D&O insurance.

General Coverages

Pursuant to your particular policy language, coverage provisions, and exclusions; Directors and Officers policies can include coverage for:

Side A – Personal Asset Protection: Covers individual directors and officers if the company cannot indemnify them (e.g., due to bankruptcy). Pays legal fees, settlements, and judgments.

Side B – Company Reimbursement: Reimburses the company when it indemnifies directors and officers for claims made against them.

Side C – Entity Coverage: Protects the company itself if it is named in a lawsuit alongside its executives. (Coverage for the company may vary for public vs. private organizations.)

  • Legal Defense Costs – Pays for attorney fees, court costs, and settlements.
  • Breach of Fiduciary Duty – Covers claims alleging executives mismanaged the company.
  • Misrepresentation & Negligence – Protects against misleading statements or improper business decisions.
  • Regulatory Investigations – Covers costs related to investigations by the SEC, FTC, or other government agencies.
  • Employment-Related Claims – Covers lawsuits for wrongful termination, discrimination, or harassment (if not covered under EPLI).
  • Shareholder & Investor Lawsuits – Protection against claims of financial misrepresentation or failure to act in shareholders’ best interests.
  • Mergers & Acquisitions Disputes – Covers claims from stakeholders alleging wrongdoing in M&A transactions.

Claims Scenario

A fast-growing technology startup secures millions in venture capital funding. The company’s CEO and board members present optimistic financial projections to investors, stating that the company will achieve profitability within two years.

However, due to unexpected market changes and internal mismanagement, the company fails to meet its revenue targets. Investors claim that the board and executives misrepresented financial performance and misled them into investing based on false expectations.

The investors file a lawsuit against the CEO, CFO, and board of directors, alleging:

  • Breach of fiduciary duty – Failing to provide accurate financial disclosures.
  • Negligence – Not properly assessing financial risks.
  • Misrepresentation – Making misleading statements about the company’s financial health.

How D&O Insurance Helps:

  • Legal Defense Costs: Covers attorney fees for the executives.
    Settlements & Judgments: Pays for any settlements or damages awarded to investors.
  • Personal Asset Protection: Prevents executives from paying out-of-pocket for claims.

Without D&O insurance, the executives could face significant personal financial loss, legal expenses, and reputational damage. This coverage ensures that corporate leaders can make decisions without fear of personal liability.

Contact CastleWise to discuss Directors and Officers insurance coverage.