MMA Blog

An Explainer on D&O Coverage and Why All Executive Boards Should Have It

Serving on a board can be a rewarding experience for any professional. You help make decisions that guide a group and gain experience helping your community. Boards come in many shapes and sizes. You might serve on a board of directors for a large company or a local non-profit organization planning after-school programs. Or you might serve on your condo association's board helping to make sure the boiler gets replaced in a timely fashion. Either way, you are tasked with making reasoned decisions and seeing them through to completion.

But serving on a board also can leave you vulnerable to lawsuits when the group makes an unpopular or harmful decision. When creating or considering joining a board of directors, you should always make sure that the group's liability is covered with Directors and Officers Insurance (D&O), which can be provided by local experts at MMA Insurance.

"All businesses get general liability coverage," says Shaun Peterson, sales executive, commercial insurance at MMA. "That policy would cover things like slips and falls at the business or injuries at the job site."

"D&O coverage, is 'decision insurance' so-to-speak," Peterson says. "Directors and officers can make willful decisions that can impact stakeholders like employees, investors or members of the public." As a result, a board might make a decision that can impact a stakeholder financially or make them upset enough to sue the board of directors.

Protect your board and protect yourself, with D&O coverage.

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"The interesting and sometimes scary part of that is if you serve on the board, you can be sued individually," he adds. "If you don't have D&O coverage, your personal assets could be at risk."

"In a 2016 survey by Chubb, the average reported loss from a D&O lawsuit was $387,000 and the biggest reported loss was $17 million," writes Sara Kelly at the Phoenix Business Journal.

In states like Montana, with a so-called "Good Samaritan Law," some people might think they're covered from personal liability suits. But the law doesn't cover an entity or individuals on a board of directors who make specific decisions (not accidental mistakes).

The difference between the law and D&O coverage is that the law does not protect the entity and does not provide protection for willful misconduct. That's the key, says Peterson. In addition, while you might be in the right, thanks to some parts of the Good Samaritan law, it doesn't provide you legal assistance, which D&O coverage would, Peterson says.

"You could spend tens of thousands of dollars defending yourself," he says. "The law might help you win your case, but it's not going to buy you an attorney."

 

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