What is Directors and Officers Insurance?
The people who lead organizations assume a significant amount of responsibility, and with that responsibility comes risk. Should leaders make an error in their work, they might be held financially responsible for any consequences that follow the mistake. Directors and officers insurance gives Massachusetts business and nonprofit leaders protection against some of the risks they face as a result of their roles.
Directors and officers insurance is a specialized form of professional liability insurance that’s uniquely designed for organizational leaders. Like other forms of professional liability insurance, D&O insurance will normally help cover legal defense fees, settlements and judgments associated with covered claims.
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Who in Massachusetts Needs a Directors and Officers Policy?
D&O insurance is primarily used to protect organizational leaders, which includes leaders of both for-profit and non-profit groups in Massachusetts. Some examples of people who might want to purchase this coverage include:
- Executives
- Presidents
- Vice presidents
- Chairpersons
- Board members
People in these positions may want coverage regardless of how big or small their organization they lead is, for almost anyone in a leadership position could potentially make an error that negatively affected the organization. Lading a small organization generally doesn’t eliminate this risk.
Do State Laws Protect Board Members of Nonprofits?
While some Massachusetts state laws may protect nonprofit board members who serve in a voluntary capacity in certain situations, laws are detailed and must be applied to specific situations. Additionally, laws might not prevent someone from initially filing a lawsuit or provide all of the protections that a directors and officers policy offers.
Nonprofit board members who would like to make sure they’re well protected should work closely with a qualified attorney and an experienced insurance agent. Together, these professionals can help board members understand their risk exposure and various protections (including both legal and available insurance protections).
How Much Do Directors and Officers Policies Cost?
As with most commercial insurance policies, the premiums charged for D&O insurance policies vary depending on a number of factors. Some of the items that insurance companies might consider when setting rates are:
- How many leaders are covered
- What positions those leaders hold
- What protections the policy provides
- Whether there’s a history of past claims
To find out how much coverage would cost in a specific situation, leaders and organizations should contact an independent insurance agent who specializes in this particular coverage. A specialized agent will know what coverage to look for and how various factors can impact premiums, and someone who’s independent can compare policies from different insurers to find the best coverage and price combination.
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Why Do Some Organizations Pay for Their Leaders’ Directors and Officers Policies?
Many organizations choose to pay the premiums associated with their leader’s D&O insurance for a very simple reason. The leaders wouldn’t be exposed to the risks that D&O policies protect against if they didn’t serve their organization. Since the risks are directly linked to their work for the organization, it’s reasonable (although not necessarily required) for the organization to cover the cost of insuring against those risks.How Long Are Directors and Officers Policies’ Terms?
D&O insurance policies are commonly underwritten for one-year terms, but some insurance companies may offer policies with different term lengths. Leaders and organizations that have specific term length requirements should work with a knowledgeable agent to find the option that best meets their needs.