It’s a common misconception that only publicly traded companies need Directors and Officers (D&O) Insurance. In fact, any entity with a board of directors should consider it. That includes privately held companies, churches and other non-profits. Sophisticated directors and officers will insist upon it, and without it, it will be difficult to recruit a quality board of directors or serious investors.

For public companies, the biggest exposure a director or officer faces is a shareholder securities class-action lawsuit. Typically they allege that the directors and officers made false or misleading statements or failed to disclose facts to the public that resulted in harm to shareholders. For privately held organizations, directors and officers face liability from minority shareholders, family shareholders, customers and suppliers. The largest exposure for a director or officer of a nonprofit organization tends to be employment practices related.

D&O insurance protects directors and officers from exposing their personal assets to the risk of an uninsured loss due to their service. Typical claims can include suits for actual or alleged error, misstatement, omission or breach of duty. Employment practices liability insurance can and should be endorsed onto D&O policies, because more than 50% of D&O claims are employment practices related.

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