Understanding the Limitations of Directors and Officers Insurance


Directors and officers insurance provides an essential form of protection for private companies. This insurance helps guard against financial losses associated with claims of wrongdoing by directors or officers. Still, even the most comprehensive directors and officers for private companies policy has limitations. It is critical for decision-makers to understand these restrictions when evaluating whether further insurance coverage is needed.

Unusual Costs

Directors and officers insurance is designed to provide coverage for defense expenses and the cost of any damages that are awarded after a claim is made. However, this insurance typically does not cover regulatory fines or other financial sanctions that are awarded outside of a claim. Additionally, some policies may exclude damages that are punitive or multiplied.

Excluded Situations

A directors and officers for private companies policy typically cannot offer coverage for intentional wrongdoing on the part of directors, officers or the company itself. This insurance may cover professional oversights, mistakes and negligence, as long as these actions are apparently innocent. However, cases in which directors or officers knowingly withheld information, misrepresented key facts or breached their professional duties are not eligible for coverage.

Addressing Coverage Restrictions

To fully understand the limitations of a given policy, company decision-makers should regularly review the policy with an insurance agent. An agent can identify and explain the limitations of a company’s current policy. An insurance agent may also be able to suggest complementary policies that could reduce potentially harmful gaps in coverage.