D & O Insurance: A Primer
Lawrence J. Trautman
Western Carolina University
February 2, 2012
American University Business Law Review, Vol. 1, 2012
It is unquestioned in today’s business and litigation climate that corporate officers and directors face significant exposure based simply on their roles and titles, no matter how effectively, carefully, or in good faith their decisions are made. Director and officer insurance, often called D&O, is designed to protect executives, outside directors, as well as the companies they serve against liability arising from actions taken in the course of doing business.
Claims against officers and directors come in many forms, ranging from common law claims for breach of fiduciary duty to shareholder class actions for violations of the securities laws. Even when these allegations are baseless, companies — as well as individual directors and officers — may still face significant defense and settlement costs. D&O insurance, in tandem with indemnification, is designed to protect against the legal expenses of fighting litigation, as well as the underlying liability exposure. Our goal in writing this article is to present a basic explanation: what D&O insurance covers, what it doesn’t cover, how the market for coverage availability waxes and wanes over time; and what you can do to minimize insurance costs and improve coverage terms.
Number of Pages in PDF File: 48
Keywords: Claim, Clawbacks, Corporate Governance, Directors, D&O Liability Insurance, Duty to Defend, Dodd-Frank, Exclusion, FCPA, Fraud, Indemnification, Insurance, Insurance Coverage, Insurance Underwriting, Risk Management, Risk Oversight, SEC, Wrongful Act
JEL Classification: G22, G30, K11, K13, K20, K22, K42
Date posted: February 6, 2012