If you serve as an independent director of a corporate entity (whether it is for-profit or non-profit) you’re likely covered by a directors and officers (D&O) liability insurance policy purchased by the entity for the benefit of the organization as well as the individual officers and directors.
It has often been suggested that independent directors should seriously consider purchasing their own directors liability insurance policy to have as a safety net. This is because corporate directors and officers can be sued individually for acts they perform (or fail to perform) or any decisions they make while serving on the board.
For example, if someone alleges the corporate leadership harmed the organization or another individual in the course of managing financial affairs or establishing policies, the resulting legal fees and potential judgments or settlements can devastate the organization as well as the individuals, which is a very good argument for securing your own directors insurance policy.
Ask questions about the coverage the organization is providing
Before ever agreeing to serve on a board of directors (or continuing to serve), as an independent director, you should request specific details about the D&O policy the organization has in place. Ask for a copy of the policy and make sure that you read it. Make sure you understand the language and the provisions as they relate to you, as a careful reading may convince you that the corporate D&O policy does not necessarily provide the complete protection you may personally need in order to protect your assets.
If a stockholder of a corporation or a member of an organization alleges that a financial loss was as a result of your breach of the duty of care or loyalty to the organization, how do you suppose this will impact you? These types of accusations, while rare under some circumstances, unfortunately do occur from time to time. Employees, governmental entities, competitors, or creditors may allege negligence or some other breach of duty.
Don’t let limits of liability or exclusions cause you any undue stress or concern. Purchase directors insurance that will give you peace of mind should you become the target of false or incriminating allegations.