When your company or business faces litigation or a lawsuit, the directors and officers of the company face unique challenges and risks. Directors and officers insurance is one way to safeguard the leaders of the company against being sued for the performance of their specific duties as related to the company. Simply put, directors and officers insurance is similar to an errors and omissions policy for a management level.
As a general rule, it is a good idea to carry both D&O and E&O insurance policies for your company. E&O insurance deals typically with negligence and performance failures in regards to your products and services. D&O insurance typically handles cases that are brought in regards to the duties of the management of the company.
When To Get It
Your company should purchase a directors and officers insurance policy as soon as a board of directors is assembled. If you are looking for investors for your company, most will want to see that you have obtained a D&O policy before being willing to fund your company. Some companies purchase D&O insurance as soon as they have employees, as they are now open to lawsuits involving employment practices, which are usually covered by this policy.
Why You Need It
Any claims that are brought against the company will likely also include the directors or officers of the company in the claim. This insurance protects the directors and officers of your company rather than forcing them to put their personal assets on the line in a lawsuit.