What Is D&O Insurance and Who Needs It?

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Directors and officers (D&O) liability insurance is a type of business insurance that protects directors and officers of a company when they are sued for alleged wrongdoing while serving in their roles as corporate executives. Examples of alleged wrongdoing may include failing to implement corporate governance, theft of intellectual property and misuse of company funds. Covering the costs of attorney fees, judgments and settlements, D&O insurance helps cover expensive claims and protect the personal assets of directors and officers.

d&o insurance

How Does Directors and Officers Insurance Work?

Directors and officers (D&O) insurance is a type of business insurance that protects directors, officers, managers and board members of a company when they are sued for allegations of some type of wrongdoing while serving in their roles as corporate leaders. Claims may be filed by customers, employees, competitors, vendors or some other third party, and may involve the below allegations and more:

  • Failure to disclose or inaccurate disclosure
  • Breach of fiduciary duty
  • Neglect
  • Misuse of company funds
  • Mismanagement
  • Misconduct

When a third party makes an accusation of wrongdoing against a director or officer, the company can file a claim with the D&O insurance carrier for reimbursement. The carrier will then investigate the claim to determine if it is covered under the policy. If the claim is covered, the carrier will pay for the costs of defending against the claim, as well as any judgments or settlements that may be awarded.

What Does D&O Insurance Cover?

D&O insurance will cover several types of misconduct or wrongful acts allegedly committed by a director or officer while performing their duties, including:

  • Bodily injury
  • Property damage
  • Breach of duty
  • Neglect
  • Misleading statements
  • Misuse of company funds
  • Mismanagement
  • Failure to disclose or inaccurate disclosure
  • Corporate manslaughter (responsibility for causing death)
  • Lack of corporate governance (no system for guiding the conduct of members within the organization
  • Internal investigation expenses
  • HR issues
  • Theft of intellectual property
  • Legal fees and costs associated with defending against claims or lawsuits
  • Judgments or settlements awarded as a result of a claim or lawsuit
  • Personal assets of directors and officers, including salaries and personal income
  • Public relations expenses related to a claim or lawsuit
  • Fines and penalties imposed on directors and officers
  • Defense costs
  • Certain securities claims and shareholder derivative lawsuits

What Isn’t Covered by D&O Insurance?

The scenarios below, such as illegal or intentional acts and certain labor violations, are generally not covered by D&O insurance.

  • Intentional, criminal or dishonest acts
  • Deliberate fraud
  • Embezzlement
  • ERISA violations (includes administration of 401(k) plans or other employee benefits)
  • Professional liability
  • Expenses beyond the policy limit
  • Claims that occurred prior to the policy coverage start date

What Types of D&O Liability Insurance Are There?

Businesses can choose from three types of D&O insurance policies: Side A, B or C. The policy recommended will depend on your business’s financial situation and whether it’s a private startup or a publicly traded industry leader.


Insured Party

Insured Assets


Side A

Individual directors or officers

Director’s or officer’s personal assets


Side B


Business assets


Side C

Publicly traded company

Business assets


Side A coverage provides coverage for directors or officers not indemnified by the corporation. This means the corporation would hold the leaders harmless and cover their legal expenses. A corporation may not indemnify its executives for various reasons, such as financial insolvency or bankruptcy. Instead, the insurance company would insure the leader directly.

Side B coverage covers directors or officers indemnified by the corporation. This means the corporation would reimburse the leader’s defense costs and damages that arise from the alleged wrongdoing. The corporation would then file a D&O claim with its insurer to get reimbursed for what it paid to the leader.

Side C coverage, also called entity coverage, is D&O insurance specifically for publicly traded companies, providing coverage against securities claims. Securities claims, filed by company shareholders, alleging that the corporation is liable for a loss in share market value.

Don’t Let Your Business Leaders Go Unprotected

How Much Does D&O Insurance Cost?

According to Advisen, an insurance data provider, private companies with annual revenues between $50 million and $100 million pay $50,000 per year, on average, for average policy limits of $5 million. On the lower side — a private business with annual revenue of up to $50 million for only an average limit of $2.6 million — the average annual cost is $15,851.

Several factors can affect the cost of directors and officers (D&O) liability insurance, including:

  • Business size: Larger organizations and publicly-traded companies may be considered higher risk and typically pay more for D&O insurance.
  • Industry: Companies in certain industries, such as financial services or healthcare, may be considered higher risk and may pay more for D&O insurance. Businesses in manufacturing, transportation, communications, utilities and general service sectors usually pay higher rates, according to Advisen.
  • Number and type of directors and officers: The number and types of directors and officers can affect the cost of D&O insurance, as some individuals may be considered higher risk due to their position or responsibilities within the organization.
  • Company's financial performance: Companies with a history of financial difficulties or unstable financial performance may be considered higher risk and may face higher D&O rates.
  • Claims history: Companies with a history of claims or lawsuits may be considered higher risk and may pay more for D&O insurance.
  • Coverage limits: Higher D&O coverage limits provide additional coverage but will also cost more.
  • Policy deductible: Higher policy deductibles will generally result in lower premiums.

Who Is D&O Insurance Best For?

D&O insurance is best for any business or nonprofit that wants to protect its executives against acts of alleged wrongdoing. Leaders in businesses of all sizes and annual revenues are vulnerable to accusations of mismanagement or breach of duty, after all.

D&O insurance is particularly important for publicly-traded companies, especially for those that recently filed an IPO. According to global professional services firm Aon, liability risks can increase within the first three years after an IPO.

Cyber attacks have been a consistent and top concern for directors and officers. According to a 2021 D&O Liability Survey by Willis Towers Watson and Clyde & Co LLP, the majority of U.S. businesses have rated cyber attacks (54%) and data loss (52%) as significant or extremely significant for their business. Rightfully so, since cyber liability losses can create considerable financial repercussions.

For example, in 2018, Yahoo agreed to a multi-million dollar settlement to settle charges that “misled investors by failing to disclose one of the world’s largest data breaches in which hackers stole personal data relating to hundreds of millions of user accounts.”

D&O Insurance Pros and Cons

D&O insurance provides financial coverage for your corporate executives for alleged wrongdoing and can help you recruit talented leaders. However, these policies can subtract considerably from your bottom line.



  • Cover costly litigation fees
  • Can be expensive
  • Attract managerial and leadership talent


  • Cover costly litigation fees: Even if a claim against your corporation’s leaders is proven false, the claim can still incur significant costs in legal fees. D&O insurance will provide financial coverage when such allegations go to court.
  • Attract managerial and leadership talent: Corporate leaders are subject to scrutiny from shareholders, employees, customers and other third parties. Talented leaders may be more likely to join your organization if you have protections for them via D&O insurance in place.


  • Can be expensive: D&O premiums can cost tens of thousands of dollars depending on your business. Companies that recently filed an IPO are especially vulnerable to high D&O rates.

How To Get Directors and Officers Liability Insurance

Take the steps below to buy get directors and officers liability insurance for your organization:

  1. Assess your needs: Determine the specific risks and exposures that your organization and its directors and officers face and choose an appropriate coverage level. For example, D&O insurance would be particularly useful for a public company that has to answer to shareholders.
  2. Shop around: Get quotes from multiple insurance carriers to compare prices and policy terms. Be sure to ask about any discounts that may be available.
  3. Review policy terms and coverage limits: Carefully review the policy terms and coverage limits to ensure that they meet your needs and budget.
  4. Purchase the policy: Once you have selected the most appropriate policy, pay the premium and obtain a copy of the policy for your records.
  5. Keep your policy current: Review your policy periodically to ensure that it continues to meet your needs and make any necessary updates or changes. Market trends shift and shopping around regularly can help ensure you’re getting the price available.
  6. Stay legally compliant: By staying legally compliant, you can reduce the risk of being accused of wrongdoing or negligence, and therefore reduce the risk of being named in a D&O claim. This can help to protect your reputation and financial well-being.


Does my small business need D&O insurance?

Directors and officers liability insurance is not legally required but can be invaluable for covering legal costs and protecting the personal assets of directors and officers. The risk exposure of your organization’s leaders will determine whether this coverage is worth buying.

What's self-insured retention?

Self-insured retention (SIR) is the amount of money that an insured party agrees to pay out of pocket for a covered loss before the insurance policy begins to cover the remaining costs. It functions similarly to a deductible.

What is the difference between D&O and E&O insurance?

E&O insurance is coverage specifically for claims related to the rendering of professional services, such as lawyers providing inaccurate legal advice. D&O insurance focuses more on leadership decisions and behaviors, such as mismanagement of funds or lacking a system for governing leadership conduct.

What is D&O insurance for nonprofits?

Directors and officers insurance for nonprofits protects executives in a nonprofit organization from alleged wrongdoing, such as misuse of funds and theft of intellectual property. This coverage will pay for legal defense costs plus settlements or awards that may be issued.

Key Takeaways

  • Directors and officers (D&O) liability insurance protects directors and officers of a company from financial losses and legal fees that may result from claims of alleged wrongdoing while they are serving in their roles as corporate leaders.
  • D&O insurance can cover a variety of risks and exposures, including allegations of wrongful acts, errors or omissions, neglect, mismanagement or misconduct.
  • Factors that affect the cost of D&O insurance include the size and type of organization, its industry, the number and type of directors and officers, the company's financial performance and coverage limits.

D&O insurance is only one component of a comprehensive protection plan for your business. Depending on your business, you may want to consider errors & omissions, cyber liability, commercial property and other types of coverage. SmartFinancial can help match you with a business insurance policy that matches your needs and budget. Just enter your zip code below or call 855.214.2291 to receive your free commercial insurance quotes.


  1. Advisen. “Spotlight on the US Private D&O Market,” Page 10. Accessed Jan. 5, 2022.
  2. U.S. Securities & Exchange Commission. “Altaba, Formerly Known as Yahoo!, Charged With Failing to Disclose Massive Cybersecurity Breach; Agrees To Pay $35 Million.” Accessed Jan. 5, 2022.
  3. Aon. “Directors and Officers (D&O) Liability Insurance.” Accessed Jan. 5, 2022.

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