D&O Insurance

Liability Insurance

Directors and Officers (D&O) Insurance

D&O insurance protects a board of directors and the officers of a company against a variety of threats, internal and external. It guards the personal assets of those making business decisions. Directors and officers insurance bolsters the financial stability and wellbeing of your board, officers, and entire organization.

D&O insurance also aids in attracting key leadership. Board memberships are typically not paid, are not employees, and not covered by the organization’s general liability policy. Seasoned members will want assurance their personal assets are protected while performing the duties of the board.

The guidelines below are typical for most directors and officers insurance policies today. However, since policies vary, refer to specific policy language or consult an insurance agent for details.

Mike Barnum, CIC

Risk Negotiation & Placement

(757) 589-9493 | Cell


Assumed Liability

By fulfilling the role of an officer or director of an organization, these individuals are assuming liability.

  • Obedience: They are expected to perform their duties in accordance with the organization’s articles of incorporation and bylaws.
  • Loyalty: They are to discharge duties in good faith, in an honest manner, without self-dealing, personal profit, gain, or misuse of confidential information.
  • Fiduciary Duty: They are to act in the best interests of the company, thereby avoiding conflicts of interest. When such conflicts arise, they are to disclose them and exercise due care to avoid any transaction not fair to the company. Although allowed to rely upon outside information, they must always make informed decisions – ignorance is not a defense. They must be forthright and truthful in dealings and not misrepresent fact.

Who is covered

D&O insurance policies define to whom the coverage applies. Generally, the following are included:


  • Past, present or future directors, officers, managers, trustees, members of a board of managers, in-house general counsel, or equivalent of these positions
  • Employees (part time, seasonal, leased, temporary), and volunteers


  • Named Insured: The Organization listed in the policy
  • Subsidiaries: If an organization has subsidiaries, operating companies, or affiliates, the definitions in the policy need to be broad enough to cover them. Typically, coverage is determined based on ownership and control. If the organization owns between 51% and 100% of the entity, and controls 51% or more of board voting, coverage is generally provide. Entities in question should be added to the policy by endorsement, preventing disagreement in the event of a claim. Be careful to only add entities your company would want to defend.

Key Provisions and Definitions

Claims-Made Coverage: D&O insurance is usually written on a claims-made basis, meaning coverage is triggered when the claim is first made, not when the incident occurred. This is because many allegations are manifested over time, after the policy term has ended. Further, many actions taken by a board do not manifest immediately, but over a longer period.

Claim: written demands for monetary and non-monetary relief, civil and criminal proceedings, administrative or regulatory proceedings, and requests for mediation or arbitration

Loss: costs of defense, monetary judgements, settlements, compensatory damages, punitive or exemplary damages, civil fines, and penalties assessed against individuals

Wrongful Act: If not excluded, it is covered.

Hammer Clause: Most directors and officers insurance policies state the insurance carrier cannot settle a case without consent from the policyholder. However, if the carrier wants to settle and the policyholder withholds consent, the hammer clause defines how additional costs are shared. The carrier will always pay the initial settlement, but anything additional will be split between the carrier and policyholder. An 80/20 split between the carrier/policyholder is common today, where the policyholder becomes responsible for 20% of any amounts over what the carrier might have initially settled.

Rescindability:  A provision providing circumstances where a carrier may rescind the policy, usually when defrauded. Many carriers offer directors and officers insurance policies that are non-rescindable, and only those parties responsible for the fraud lose coverage.

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Claims against a directors and officers insurance policy can arise from internal and external sources, alleging a variety of wrongs.


  • Clients
  • Competitors
  • Employees
  • Creditors
  • Government and regulatory bodies
  • Shareholders
  • Vendors


  • Anti-trust violations
  • Contract disputes
  • Failure to disclose
  • False advertising
  • Improper billing practices
  • Infringement of patent, trademarks, or trade secrets
  • Misrepresentation/fraud
  • Personal injury
  • Tortious interference
  • Unfair competition


Medicare/Medicaid Billing Upcoding


A mental healthcare facility provided comprehensive behavioral health services. The organization underwent a Medicare audit. The state raised concern over billing practices regarding improperly coded psychosocial rehabilitation services. The state contended the facility received payments from the Medicaid program to which it was not entitled. The billings at issue spanned five years.


Fraudulent claims in the form of improper billing codes, in violation of their State False Claims Act


Mental Health Center paid $54,281.76 to the State of New Hampshire, however defense costs were more than $250,000.

The Runaways


Two teens under the supervision of a youth facility ran away and broke into vacant vacation homes in a nearby community. The two teens encountered an elderly couple living in one such home and brutally murdered the couple. Suit was brought by family members against the facility, also naming each board member, officer, and the original founder.


  • Breach of fiduciary care
  • Failure to provide adequate and proper supervision
  • Failure to provide timely notification to law enforcement
  • Negligence


The organization was found not guilty, but defense costs were more than $350,000.

Coverage Gaps

A few questions to determine if a D&O insurance policy exhibits coverage gaps:

  • Are the definitions broad enough? Are they competitive with other policies?
  • Are all intended parties covered?
  • Are coverage triggers clearly defined?
  • Are any exclusions added to your policy?

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Anyone can be an order-taker. Bankers Insurance is different.

We offer choices and expertise. We don’t expect clients to be D&O insurance experts. Take advantage of our experience. We can explain your options and help you determine the right coverages.

As your insurance agent, we strive to know you. Only then can suggest the coverage that suits your specific business. We look for coverage gaps to help ensure complete protection. With us, you get the benefit of: