Directors And Officers (D&O) Insurance For Small Business (2024)

FAQs

Do small businesses need D&O insurance? ›

Without D&O liability insurance, the officers and company must bear the entire cost of any legal action against the officers or directors. Any breach, misrepresentation, or even theft of intellectual property can lead to a personal lawsuit.

Any business with a corporate board or advisory committee should consider investing in D&O insurance, including non-profit organizations. Your company does not have to post revenues in the tens of millions of dollars for your directors and officers to be personally sued over their management of company affairs.

Directors and officers (D&O) liability insurance covers directors and officers or their company or organization if sued (most policies exclude fraud and criminal offenses). D&O insurance claims are paid to cover losses associated with the lawsuit, including legal defense fees.

Directors and Officers (D&O) insurance: If your LLC has a Board of Directors, your board members or appointed officers could be personally sued by employees, investors or competitors over the management of the company. D&O insurance will cover these legal costs and keep their personal assets protected.

While publicly traded companies tend to have heightened exposure by comparison, privately held companies are also at risk for D&O claims.

A company pays for this coverage so executives can serve confidently as leaders of their organization without fear of personal financial loss. In essence, D&O insurance is a safeguard for company management that will reimburse settlements and legal defense costs from covered claims.

Given the complexity and costs of these claims, any company or organization with a board of directors, has secured investments, or could be accused of financial mismanagement should strongly consider D&O insurance.

If your organization doesn't have any employees, you can purchase $1 million in D&O limits for approximately $600 each year. If your organization has employees, you can pay around $1,200 for those with just a few employees to around $4K to $5K for up to 50 employees.

Misconduct Exclusions

D&O policies include an exclusion for losses related to criminal or deliberately fraudulent activities. Additionally, if an individual insured receives illegal profits or remuneration to which they were not legally entitled, they will not be covered if a lawsuit is brought forward due to this.

What triggers a D&O policy? ›

Common D&O risk scenarios include:

Shareholder Actions: Legal actions brought by shareholders against directors and officers for various reasons, such as mismanagement or failure to act in the company's best interests. Reporting Errors: Claims resulting from inaccurate or misleading financial or operational reporting.

If directors and officers do not have insurance, they face a greater risk of not being able to defend themselves against: disqualification from holding the position of director. civil proceedings which can lead to hefty legal costs and awards for damages.

Deductibles and coverage limits are just a couple factors that influence the cost of D&O insurance. Your insurance provider will also look at legal jurisdictions based on location, industry risk factors, number of employees and directors, company revenue, claims history, and potential for initial public offering.

Many lawyers argue the minimum for any public company regardless of size, should start at 5-10 Mill. Public companies also generally have more complex towers with multiple layers of coverage, including Excess Side A insurance.

So what kind of insurance does your startup need? Start with the basics: business property and general liability insurance will cover things like stolen laptops or a slip and fall accident, respectively.

Insufficient experience or knowledge could lead to significant complaints or claims against the nonprofit. With the average claim against non-profit directors and officers costing around $35,000 to settle, it is necessary for non-profit organizations of all sizes to secure D&O insurance.

A local policy can protect personal assets from being frozen. For example, some local polices are written to provide a budget for household expenses (typically sub-limited) in case bank accounts are frozen.