What is California Directors and Officers Liability Insurance?

Directors and officers liability insurance (D&O) is a critical component of almost every organization’s risk management program. In today’s business climate, Directors & Officers liability insurance is no longer a necessity for just large, publicly traded companies. All organizations—regardless of their size, mission or structure—have some form of D&O exposure. Yet, despite the fact that D&O insurance has been around for decades, it remains one of the most complex and misunderstood insurance policies.

At GDI Insurance Agency, Inc., we feel it’s essential to bring as much clarity as possible to the subject of Directors & Officers liability insurance. Doing so allows our clients to make informed buying decisions and structure well-rounded risk management programs. As such, we have developed this guide to educate organizations on the risks facing their directors and officers and how D&O insurance can help.

Responsibilities of Directors and Officers

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In order to understand the benefits of Directors and Officers Liability insurance, we must first examine the responsibilities of directors and officers.

When it comes to basic corporate functions, directors and officers of both private and public companies have a number of specific duties. Directors and officers are expected to fulfill these duties and they have an obligation to act in a company’s best interests.

  • Duty of Diligence
  • Duty of Loyalty
  • Duty of Obidence

9 Reasons To Acquire Directors and Officers Liability Insurance

  1. Personal Assets Are At Risk – If directors are accused of breaching one of their duties, they might be personally liable to defend the claim.  Without adequate D&O insurance, their personal assets could be threatened.
  2. Attracting Talent– Individuals may be reluctant to take on a role as a director without the protection of a D&O insurance policy.  Without D&O coverage, organizations can struggle to find the right people to serve in key corporate positions.
  3. Security in Bankruptcy– Businesses facing financial difficulty sometimes go bankrupt.  In bankruptcy, creditors can pursue legal action against directors and officers if they feel that they have not acted in the organization’s best interests.
  4. Protection from Regulators – Each day, regulatory bodies carry out investigations for potential corporate wrongdoings.  As a result, regulatory bodies often impose costly fines against businesses.
  5. Small and Medium- Sized Enterprises (SMEs) are at Risk– SME’s are not exempt from D&O claims.  In fact, they face many of the same risks and regulations as their larger peers, but often do no benefit from in-house HR or legal teams.
  6. Competitor Lawsuits- If an organization’s competitors believe that they have been unfairly disadvantaged by dishonest or illegal actions, they may seek recourse through legal action.  Competitors may sue directors and officers for a wide range of perceived wrongdoings.
  7. Employee Practices Claims are on the Rise- In an increasingly litigious society, employment practices claims, such as sexual harassment or wrongful dismissal can force directors to defend themselves against legal action.  These claims can result in costly settlements for plaintiffs and put directors at risks.
  8. Protection from Shareholder Actions– Due to their financial investment, shareholders have an incentive to monitor an organization’s ongoing performance.  Disgruntled investors may file suit against directors and officers if they are unpleased with an organization’s direction.
  9. Buyer’s Market – As more insurance companies have entered the market, competition has created broader coverage and reduced premium rates for policyholders.  This combination makes Directors & Officers Insurance an affordable Risk Management Solution for most businesses.

GDI Insurance Agency, Inc.

California’s leader in Insurance and Risk Management

As one of the fastest growing insurance agencies in California, GDI Insurance Agency, Inc. is able to provide its clients with the latest and greatest of what the insurance industry has to offer and much, much more.

With locations across the heart of California’s Central Valley and beyond to provide a local feel to the solutions and services we provide our clients. We pride ourselves on exceeding our client’s expectations in every interaction to make sure that our client’s know how much we value and appreciate their business.

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