Directors and officers insurance is a program that protects a company's executives from the various legal exposures they face. Its application is wide-ranging and ensures directors have the standard coverage for legal claims, which can come up through many sources. However, there are many questions and concerns about the limitations of Directors & Officers Insurance.
Does D&O Insurance protect against bankruptcy? Can executives be safe from sexual harassment claims? What about allegations related to COVID-19? Individual events can exclude protection in a D&O plan for many reasons. Read more about the exclusions of a D&O insurance plan below.
The principle of insurance is to offer protection for unforeseeable events, and in this regard, directors and officers and insurance is no exception. A policy will not provide coverage for any circumstance that management is already aware of or for a claim that is already underway before the inception of the D&O policy. There is no real incentive to insure anybody who is guaranteed to suffer significant loss and damage because this would acquire an unprofitable business scenario.
D&O insurance protects executive officers from decisions made during their work. A policy will not cover any fraudulent or dishonest behavior or actions that result in executives gaining illegal profit. Before denying indemnity to an officer, an insurer requires adjudication from a formal admission from the offending party. In general, an insurer defends an executive because they are innocent until they are proven guilty.
D&O coverage provides executives the comfort of knowing they have an insurance company's experience supporting them should they come face to face with a claim. However, D&O insurance has usually excluded claims by a company against its executives or one insured against another. This is because it removes an executive's incentive to file a lawsuit against themselves to recover company losses due to their mismanagement.
Unfortunately, insurance coverage cannot guarantee coverage for claim expenses in every situation. This is due to legal regulations placed on insurers and the executives they serve to protect. An insurer may not pay criminal fines issued to a director or officer, as some jurisdictions prohibit insurance from covering these damages. Moreover, many insurers are affected by governments' economic sanctions, which do not allow an insurer to fund litigation resulting from business operations within a sanctioned region.
At Axis Insurance Services, we aim to help our customers identify their exposures and protect themselves. Founded in 1999, we offer insurance programs to a wide variety of professionals and industries including attorneys, real estate, healthcare, architects, and more, and also have a wholesale division. We pride ourselves on offering flexible insurance coverage tailored specifically to each customer’s needs. To learn more about our solutions, contact us at (877) 787-5258 to speak with one of our professionals.