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Directors & Officers Insurance Policy


Many people believe that incorporation creates a legal veil leaving limited liability behind. This is not the case. Directors and Officers of a corporation are responsible for their actions, the actions of the corporation and in some instances the actions of other directors. The courts have assessed damages against directors of corporations for wrongful actions.

In some cases the laws carry specific legal responsibilities for directors. Directors & officers can be held personally liable for misuse of funds, misappropriation of funds, knowledge of illegal or improper acts, making improper loans, fraudulent acts, transactions or decisions which are not authorized by the bylaws of the corporation.

Directors & officers can be held liable for improper conduct to shareholders or members for the management of funds, creditors for breach of trust and misappropriation of funds, employees and volunteers for unpaid wages and unsafe working conditions.

The D & O policy is designed so that the insurance company is responsible to defend the directors & officers from legal action due to a wrongful act and to pay the costs and damages including the cost to defend.

Remember, the allegations do not have to be true. The mere fact that allegations exist will result in significant defense costs on the part of the director or officer.

Some questions to ask yourself:

Are your premises well protected from burglary or theft by dead bolt locks, and alarms? Are your procedures such that they will discourage, prevent or reduce the possibility of fraud, errors and mismanagement?

Do you avoid conflict of interest situations?

Do you hire competent experts?

Do you have clearly defined job descriptions?