Yes, an individual can obtain Directors & Officers (D&O) insurance, though it is more commonly secured by the company itself. While companies typically purchase D&O policies to cover their directors, officers, and occasionally employees, there are specific circumstances where individual directors may choose to acquire their own policies for personal protection.
Understanding D&O Insurance
Directors & Officers (D&O) insurance is a liability insurance that protects the personal assets of corporate directors and officers from potential lawsuits arising from their decisions and actions taken in their managerial capacity. These lawsuits can come from various stakeholders, including shareholders, employees, customers, or regulatory bodies.
Company-Purchased D&O Policies
The most prevalent form of D&O insurance is bought by the company itself. These policies are designed to:
- Protect the Company: Reimburse the company for legal fees and settlements when it indemnifies its directors and officers.
- Cover Individuals: Directly cover the directors and officers when the company is unable or unwilling to indemnify them.
- Include the Entity: Some policies also provide coverage for the entity itself against certain claims.
When an Individual Might Purchase D&O Insurance
Despite the existence of company-purchased policies, individual directors sometimes opt to buy their own D&O coverage. This typically occurs in situations where the individual feels the company's policy might not offer sufficient protection or that their personal liability exposure is particularly high.
Key reasons for an individual to consider their own D&O policy include:
- Inadequate Limits: Concerns that the company's D&O policy limits might be insufficient to cover all potential claims, especially in a large or high-risk organization.
- Financial Instability of the Company: If there are doubts about the company's financial health, an individual policy provides a safeguard in case the company cannot pay its policy premiums, deductibles, or faces bankruptcy.
- Exclusions in Company Policy: The company's policy might have specific exclusions that could leave individual directors vulnerable in certain scenarios.
- Change of Control: In the event of a merger, acquisition, or hostile takeover, the existing company D&O policy might be cancelled or altered, leaving former directors exposed. An individual policy offers continuous coverage.
- Serving on Multiple Boards: Directors serving on multiple boards, especially in different industries or with varying risk profiles, might seek individual coverage to consolidate their personal protection.
- Non-Indemnifiable Claims: Some claims may not be indemnifiable by the company due to legal restrictions or corporate bylaws, making personal coverage crucial.
Comparing Company vs. Individual D&O Insurance
Here's a quick comparison of the typical characteristics of company-purchased D&O and individual D&O policies:
| Feature | Company D&O Insurance | Individual D&O Insurance |
|---|---|---|
| Purchaser | The company or organization | An individual director or officer |
| Primary Goal | Protect the company's balance sheet and its leaders | Protect the personal assets of the individual |
| Beneficiaries | Company, directors, officers, and sometimes employees | The specific individual who purchased the policy |
| Scope | Broader, covering a range of corporate actions | Focused on the individual's personal liability |
| Commonality | Very common and standard practice | Less common, usually supplemental to company policy |
In conclusion, while the standard approach is for a company to provide D&O insurance for its leadership, an individual director or officer can indeed secure their own D&O policy, offering an additional layer of personal financial protection against the risks associated with their corporate duties.
