Key Considerations When Selecting D&O Insurance

The differences between a well-structured policy and a weak one can be significant – and those differences may not be apparent until a claim is filed. When evaluating coverage options, focus on four key areas.

Comprehensive coverage limits are the starting point. The right limit depends on the size and complexity of the organization, the nature of its activities and the realistic magnitude of potential claims. A limit that seems adequate today may prove insufficient in the context of major litigation. It is better to err on the side of higher limits than to discover a shortfall mid-claim.

The policy’s definition of wrongful acts matters enormously. A narrow definition creates gaps that may leave specific types of claims uncovered. A strong D&O policy defines wrongful acts broadly enough to encompass the full range of decisions directors and officers make in their professional capacity – not just the most obvious categories of misconduct.

Flexible policy terms allow coverage to be tailored to the specific structure and risk profile of the organization. This includes the ability to adjust retentions, extend coverage periods and add endorsements that address industry-specific exposures. A policy that cannot be adapted is a policy that may not fit.

Finally, ensure the policy provides adequate protection at both the individual and organizational level. Side A coverage – the direct protection for individual directors and officers – is non-negotiable. Without it, the individuals most exposed to personal liability may find themselves without the protection they assumed they had.