Directors and Officers Insurance (D&O)

Directors and officers can be personally sued by shareholders, regulators, employees, creditors or competitors. Legal costs alone can be very high, even if they are eventually cleared. D&O insurance pays for defence costs, settlements and damages, within policy limits and exclusions.

Policies commonly have several parts: cover for individual directors when the company cannot indemnify them, cover that reimburses the company when it indemnifies its directors, and, for listed companies, cover for the company itself against securities claims.

For example, after a company's share price falls sharply following an accounting problem, shareholders might sue its directors for misleading statements. D&O insurance would cover the directors' legal costs and any settlement.

D&O insurance helps companies attract qualified directors, who might otherwise be unwilling to take on personal risk. Exclusions typically include fraud, deliberate criminal acts and illegal personal profits, usually once proven. Premiums rise for companies in higher-risk situations, such as initial public offerings or financial distress.