Directors & Officers (D&O) Insurance: Insurance Policy Review Guide

Directors & officers insurance is a commercial line designed to address allegations of wrongful acts made against directors, officers and, in some cases, the organization itself. These allegations might involve decisions, oversight or management duties. D&O is different from general liability, which generally focuses on matters like bodily injury or property damage, and from workers' comp, which relates to workplace injuries.

D&O policies are often described using Side A, Side B and Side C. Side A generally relates to protection for individuals when the organization cannot or does not indemnify them. Side B generally relates to reimbursement to the organization when it indemnifies its directors and officers. Side C generally refers to entity coverage, which may apply to the organization itself, and in some policies may be limited to certain types of claims.

Policies vary widely by carrier, state and the type of organization, such as a startup, a private company, or a nonprofit. Definitions of who is insured, what counts as a claim, and what is excluded can differ significantly. Your policy declarations and form language are the best sources for what a particular policy says, and a licensed agent can help you read them.

Many organizations have traditionally looked at D&O when they reach a milestone that adds governance responsibility. Common triggers include forming a board, bringing in outside investors, or recruiting volunteers or professionals to serve on a nonprofit board. Prospective board members sometimes ask whether the organization carries D&O before they agree to serve.

Traditionally, people have approached D&O alongside other commercial coverages instead of in place of them. Employment practices, professional liability, cyber, fiduciary and crime coverages are sometimes packaged with D&O or purchased separately, and each has its own purpose. Some organizations buy a standalone D&O policy, while others add it to a package through a business owner's or management liability program.

Organizations also commonly look at how D&O interacts with their bylaws, indemnification provisions and investor agreements. Some investors or lenders may have expectations about coverage, and these vary by deal. Different approaches can all be reasonable depending on the organization's size, structure and risk tolerance.

A licensed independent agent who writes commercial lines may help you understand how D&O fits with the rest of your business insurance. In a typical conversation, an agent may ask about your entity type, number of directors and officers, funding plans, operations and any past claims or concerns. They may also explain how different carriers structure their policies, though coverage and availability vary by carrier and state.

An insurance policy review may include looking at items like how Side A, B and C are arranged, whether the entity is covered, how the policy defines an insured and a claim, and which exclusions apply. It may also touch on whether the policy is written on a claims-made basis, how defense costs are handled, and what happens if the organization changes ownership or ends the policy. An agent may help translate this language into plain English, but they cannot guarantee how a claim would be handled.

Good questions to bring include: Which of the sides does this policy include? Who counts as an insured person? What are the notable exclusions? How does it work with our bylaws and indemnification? What would trigger a renewal review? Also confirm that the agent is licensed for the specific line of insurance and in the state where your organization operates, since one license does not cover every line or every state.