Directors & Officers Liability

Insurance that protects directors and officers of a corporation from liability claims arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities.  It also covers the corporation (and even the officers and directors in some cases) for expenses incurred in defending lawsuits arising from alleged wrongful acts of officers or directors. 

Directors and officers are not liable for an honest mistake of business judgment made with reasonable prudence or care that results in a financial loss; but officers and directors are held personally liable for actions or omissions made with negligence, recklessness, or bad faith. Most policies have two parts: coverage A provides direct reimbursement to the directors and officers for third-party claims; coverage B reimburses the corporation if it is required or permitted, under state law or the corporate charter or by-laws, to indemnify the directors and officers. Coverage is on a claims-made basis. A few policies contain only coverage A, and some pay expenses on behalf of directors and officers, as opposed to paying on an indemnity basis.