Directors and officers (D&O) insurance

D&O insurance pays defense costs and covered damages when directors and officers are sued over decisions made in their management roles: breach of duty, misleading investors or lenders, mismanagement, regulatory action. It is written on a claims-made basis, so the claim has to be made during the policy period or an extended reporting period.

A typical policy has three parts. Side A pays individuals when the company cannot or will not indemnify them, as in an insolvency or a derivative suit settlement. Side B reimburses the company when it does indemnify its people. Side C covers the entity itself: for public companies usually only for securities claims, while private-company forms often cover the entity for a broader range. Delaware's indemnification statute (8 Del. C. section 145) sets when a corporation may indemnify, which is why Side A matters in a crisis.

Common exclusions are deliberate fraud (usually after a final adjudication), bodily injury and property damage, pollution, ERISA claims and suits between insureds. Claims against private companies and nonprofits can come from regulators, employees, creditors and competitors, not only shareholders.

Check the policy's definition of "insured," its conduct exclusion and its priority-of-payments clause. Directors and officers (D&O) insurance explained covers the market, D&O Sides A, B and C explained goes further on the sides, and insured vs insured exclusion explains a common coverage fight.