What Is D&O Insurance?

During these increasingly litigious and volatile times, your company’s officers and board of directors may be targets of financially crippling lawsuits. Decisions and judgments made by directors and officers are scrutinized more than ever and from a broader range of parties than just shareholders, such as state and federal regulators and other governmental authorities. Directors’ and officers’ (D&O) insurance provides executives with personal liability and financial loss protection from wrongful acts committed – or allegedly committed – as corporate officers. D&O insurance also provides balance sheet protection to the corporation.

What Does D&O Insurance Cover?

D&O insurance policies cover the exposures relating to “any actual or alleged error, misstatement, misleading statement, neglect, breach of duty, omission or act by the insured employee in their capacity as such.” In other words, it can cover the cost of claims made against a company and its corporate decision-makers, including directors, officers, managers and board members, when sued (most traditionally by its shareholders) for failing to perform their duties. D&O policies offer various types of coverage, including:

  • A-Side
  • B-Side
  • C-Side
  • Full Entity
  • Final Adjudication for Personal Conduct
  • Severability of the Application
  • Severability of the Exclusions
By identifying your corporate and personal exposures to liability, Aon can help design and implement a D&O liability insurance policy that fits your business – creating a program that incorporates risk mitigation recommendations and the broadest D&O insurance coverage available.

What Is the Difference Between E&O and D&O Insurance?

Errors and omissions (E&O) insurance policies cover the exposures relating to the “act, error, omission, neglect or breach of duty committed in rendering professional services.” It covers the cost of claims against your business or employees for companies providing professional advice or services.

The primary difference is that E&O is focused on risks associated with products or services a business provides, and D&O is focused on the risks related to corporate decision-making. Many organizations require both policies to address the different risk exposures.

Why Is D&O Insurance Important?

D&O insurance plays an important role for companies looking to attract and retain the best management team in an environment where heightened and increased oversight is a part of corporate life. Purchasing D&O insurance is not a cure-all, and it won’t prevent claims from happening. Instead, D&O insurance should be viewed as one of the necessary components of robust corporate governance.

Additionally, D&O insurance is especially important for public companies. Publicly traded companies are often viewed as riskier than private companies due to the potential exposure to possible shareholder class action claims. Public companies have heightened financial and public disclosure reporting requirements, increasing exposure to shareholder claims.

What Is the Average Cost of D&O Insurance?

While the cost of D&O insurance depends on many factors (i.e., industry, company size, financial condition, stock performance, etc.), Aon has a proven track record of achieving competitive pricing and broad coverage. Aon places more than $3.7 billion in D&O liability premiums, giving us significant experience in the marketplace. Our framework for analysis includes:

Insurer Selection

Clients use our proprietary Carrier Behavior Matrix and Carrier Market Share analytics to evaluate insurer claims and underwriting behavior, which results in helping bring “fact, not feeling” to the critical decision on choices for insurer program selection. We have partnerships with stable insurers that have not only the ability to pay but also the willingness to do so.

Best-in-Class Coverage Terms

Aon takes a fully integrated approach to contract performance. Our brokerage and claims team are integrated to translate what we see in claims and how we craft the language in our coverage negotiations.

Board-Ready Data and Analytics

Benchmarking provides the foundation for evaluating program metrics. Our analysis goes beyond benchmarking and includes our proprietary claims database and actuarially based D&O insight loss modeling.