Though often associated with large, publicly traded companies, Directors and Officers insurance (D&O insurance) is increasingly important for small businesses as well. Directors & Officers Insurance (D&O) protects company leaders in the event that they are sued by investors, employees, vendors, customers or even competitors. 

Directors and officers can be held personally liable if their negligence or poor judgement causes a loss of profit. Directors, officers, business owners and other company leaders are expected to follow certain standards of conduct. Known as fiduciary duty, this includes an expectation to act loyally and in the best interest of their company. They’re also expected to act on a reasonably informed basis every time a decision is made. Failure to do so can be considered a violation of fiduciary duty. Inaction, or failure to make a decision at all, can likewise be violation. In such instances where a violation results in loss of profit, directors and officers can be held personally liable. Their personal assets can be at stake. This doesn’t mean directors and officers are liable for every mistake they make. A common defense would be to prove you were acting in good faith or good judgement, even though the outcome was negative. Nonetheless, a lawsuit can be an expensive and time consuming hassle, even if it ends in your favor. This is why many company leaders seek to protect themselves with D&O insurance. By covering your defense costs, settlements, and – in some cases – even overseeing your defense strategy, D&O insurance gives you a strong level of protection (provided you aren’t found guilty of any crimes.) Executives may expect D&O insurance as a prerequisite before they’ll even consider joining any scompany. Likewise, venture capitalists may expect to see it before offering an investment.