Legal Definitions - D & O liability insurance

D & O liability insurance stands for Directors' and Officers' liability insurance. It is a type of insurance policy designed to protect the personal assets of individuals who serve as directors and officers of a company or organization.

This insurance covers legal defense costs, settlements, and judgments that may arise from lawsuits filed against these individuals for alleged wrongful acts committed in their capacity as corporate leaders. These "wrongful acts" can include a wide range of issues such as breach of fiduciary duty, mismanagement, misrepresentation, or errors in judgment that lead to financial harm for the company, its shareholders, employees, or other stakeholders.

Here are some examples illustrating how D & O liability insurance applies:

• Example 1: Shareholder Lawsuit Against a Public Company Board

  Imagine a publicly traded technology company whose stock price plummets after a major data breach exposes millions of customer records. Shareholders file a class-action lawsuit against the company's board of directors and executive officers, alleging they failed to implement adequate cybersecurity measures and misrepresented the company's data protection capabilities. The D & O liability insurance policy would cover the legal fees for the directors and officers defending against these claims, and potentially any settlement or judgment awarded to the shareholders, thereby protecting the personal wealth of these individuals.

• Example 2: Regulatory Investigation of a Non-Profit Organization

  Consider a large charitable foundation whose board of directors decides to invest a significant portion of its endowment in a high-risk venture that subsequently fails, leading to substantial financial losses. State charity regulators launch an investigation and eventually file a lawsuit against the individual board members for breach of fiduciary duty and mismanagement of donor funds. In this scenario, the foundation's D & O liability insurance would provide coverage for the legal defense costs of the volunteer board members and could potentially cover any fines or penalties they are personally ordered to pay, preventing them from having to use their personal savings.

• Example 3: Employee Discrimination Claim Against a Private Company Executive

  A senior executive at a private manufacturing company is accused by a former employee of workplace discrimination and wrongful termination. The employee files a lawsuit naming both the company and the executive personally. The company's D & O liability insurance policy would cover the executive's legal defense expenses and any personal liability for damages that might arise from the lawsuit, ensuring that the executive's personal assets are not directly at risk due to decisions made in their professional role.