Directors and officers insurance
Directors and officers insurance (D&O)
Directors and officers insurance protects board members and officers if they are sued for a decision they made on behalf of your company.
When do tech companies need directors and officers insurance?
Similar to employment practices liability insurance (EPLI), directors and officers insurance is a type of management liability insurance. D&O safeguards your board members, directors, and officers from lawsuits over their management decisions.
If your board makes a poor decision or a bad investment, this policy ensures they won’t have to pay out of pocket to defend themselves in court.
Board candidates and investors may request this coverage
Most general liability and errors and omissions policies exclude lawsuits filed by stockholders, employees, clients, or regulatory bodies against your business’s board members, directors, or officers. As a result, candidates for your board will usually require D&O insurance before they become members.
Potential investors may also require proof of coverage as part of their conditions for investing in your company.
What does D&O insurance cover?
Directors and officers insurance helps board members pay legal fees in disputes over:
- Employment practices
- Mismanaged funds
- Failure to follow corporate bylaws
- Failure to comply with industry regulations
- Intellectual property infringement or libel
Examples of directors and officers insurance coverage
If an employee makes an allegation of harassment, discrimination, or wrongful termination against your director, your business can lean on D&O insurance to cover the director’s legal costs, including a settlement or judgment for the employee.
If your board makes a management decision that negatively affects your stockholders, they could be accused of misusing company funds. D&O insurance covers the cost of reaching a settlement with stakeholders or, if need be, taking the case to court for a judgment.
If your compliance officer doesn’t adhere to industry regulations, a regulatory body could file a lawsuit against that officer. D&O insurance helps your business cover legal expenses, including court fees, attorney's fees, fines, and other claim-related costs.
How does directors and officers insurance benefit tech companies?
Your board members, directors, and officers provide valuable insights on how to grow your business, invest your capital, and manage your employees. To attract talent, you must reassure potential board members that they aren’t risking their personal finances.
D&O insurance benefits your business because it ensures:
- Board members aren’t putting their personal finances at risk to work with your company
- Your business has the liquidity to compensate investors for mismanaged funds
- Your business is protected from claims made by stockholders, employees, clients, or regulatory bodies
Directors and officers insurance costs
Besides your policy limit, deductible, and claims history, these key factors impact the cost of D&O insurance:
- Size of the company
- Size of the board
- Legal jurisdictions
- Potential for initial public offering
Bundle D&O insurance with EPLI to save
Some insurance providers offer a discount when you purchase directors and officers insurance with employment practices liability insurance. This management liability insurance bundle provides broad coverage against lawsuits related to management, employee rights, and executive decisions.
Check with a TechInsurance agent to see if your company qualifies.