Management Liability Insurance

DIRECTORS & OFFICERS / MANAGEMENT LIABILITY INSURANCE

Directors and Officers (D&O) Liability (often called “Management Liability”) is an insurance product designed to provide liability protection to the directors and officers and to the corporation (when its assets are utilized to indemnify directors and officers). Defense and indemnity are provided to the Insured(s) for wrongful acts, errors or omissions within the scope of their duties in managing the company or by reason of their status (in holding the position of Director or Officer). Additional protection is often available for direct claims against the Corporate Entity.

It is essential for a company to purchase D&O coverage so as to attract quality directors to serve on the Board.  Independent Directors add the valuable dynamics of outside input and experience. This is very beneficial as it broadens the scope of corporate governance in the management process.

A Director or officer of a company makes decisions at every turn. These decisions should be made as a prudent person in conformance with the Business Judgment Rule. This rule implies that Directors act on an informed basis, in good faith and in the honest belief that the actions taken are in the best interest of the corporation. There are various parties with a “stake” in the company.  A stakeholder is a shareholder or anyone else who has relations with or an interest in a company whether it be a supplier, vendor, customer, competitor, creditor, regulatory agency or employee.  Great care must be taken at all times to fulfill the duties of care, loyalty and candor and to avoid potential conflicts of interest.

When a company is unable to indemnify an individual due to company by-laws, or state statutes, the D&O liability policy protects the personal assets of an individual. When a company is able to indemnify the Director or Officer, the policy protects the organization from loss.

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