Finance Blog

Sit on a Board of Directors? You May Need Additional Insurance

Written by Heidi Petschauer Fox on October 15, 2013 in Insurance  |   No comments

Sitting on the board of any organization, whether a non-profit or a for-profit, can be a very rewarding experience. Unfortunately, if the organization does not have the proper insurance policy in place, doing so can also put your own assets at risk. As a director…

insurance, insurance policySitting on the board of any organization, whether a non-profit or a for-profit, can be a very rewarding experience. Unfortunately, if the organization does not have the proper insurance policy in place, doing so can also put your own assets at risk.

As a director or officer, you have a responsibility to properly run and manage a business, whether you’re on the board of your 30-unit condo complex or a publicly traded company. If investors believe you’re not properly managing the business, you could be sued—individually—for damages.

How can I protect myself?

Before you run for office or agree to sit on a board, be sure the company has a directors and officers (D&O) liability policy in place, in addition to general liability and all other insurance policies that are normal and customary for the business. A D&O policy is sometimes called a management liability policy because it protects you from managing (or mismanaging) the business.

The terms and conditions of D&O insurance policies vary greatly from policy to policy, and comprehensive coverage can often have exclusions buried in the policy that only an experienced insurance agent can detect. The more comprehensive the coverage, the higher the premium, which means that some companies may forgo important coverage to save on price.

What does a D&O policy do and how much does one cost?

A D&O policy is designed to help fill the coverage gaps of the general liability coverage. While the general liability policy is designed to cover the business in the event bodily injury or property damage occurs, the D&O policy provides protection to directors and officers from damages relating to lawsuits for, and allegations of, wrongful conduct.

The cost of a D&O policy varies based on your state, the size of the organization, and the value of the personal assets you want to protect.

What should I look for in a D&O policy?

Review the D&O policy with your insurance representative before making any decisions about sitting on the board. If the company doesn’t have adequate coverage, you may change your mind about accepting the position.

Ask your insurance agent the following questions:

  • Is the policy is with an “A” rated company? To be sure your insurance company and policy will be there for you when and if you need help, ask about its rating with A.M. Best—the rating organization that services the insurance industry.
  • Does the policy include employment practices liability (EPL) coverage? This coverage protects the board against any discrimination lawsuits brought by current employees or by third-party candidates who interview for employment with the firm on whose board you sit.
  • Are the limits of coverage high enough? Be sure you’re comfortable with the policy’s coverage limits, which can range depending on the policy.
  • Is there a failure to maintain insurance (FTMI) exclusion? If so, you could be held responsible if the company does not purchase or maintain the proper types of insurance associated with the business.

What if the organization doesn’t have a D&O policy?

If the organization has no D&O policy, or if you are not happy with the amount of coverage, but you still want to sit on the board, you can consider purchasing a personal D&O policy for yourself. It will protect you in the event the board lets its policy lapse, and it will help assure that the coverage limits are up to your standards.

If you already sit on a board of directors, it is not too late to request a copy of the D&O policy and have your insurance representative review it. Doing so may help you protect your assets in the event of a lawsuit.

Heidi Petschauer Fox graduated from St. John’s University in Queens, N.Y., in 1983 with a B.S. in management. She joined her late father’s firm, Petschauer Insurance, in 1982, became principal in 1995, and now shares ownership with her partner and cousin, Erwin Petschauer. She received her Certified Insurance Counselor (CIC) designation in 1997. She currently facilitates the professional and creative development of the entire Petschauer team and manages the personal lines and social media departments.

No comments yet

Leave a Comment

Name :

Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.

Insurance Archive

Stay Informed Sign up for our FREE Equifax email Newsletter