How This Massachusetts Insurance Policy Works
The board of directors of a corporation is elected to represent the best interests of the shareholders and the corporation. Decisions are made to support fiduciary responsibility, help grow the business, and make decisions in line with the goals of the corporation in mind. Errors, misconduct, and unpopular decisions can all lead to questions of whether or not the board is operating responsibly. When this happens, shareholders, Massachusetts and federal regulatory bodies, or third parties can all file lawsuits against the directors. These lawsuits are not covered by general liability insurance, but require directors and officers insurance for financial protection.
Directors and Officers Insurance Components
Directors and officers coverage is comprised of three components to protect different aspects of the corporation.
Indemnification is a form of reimbursement, paying the officers and directors back for any personal assets they spend defending a lawsuit against themselves as a member of the board. This type of coverage is a sought-after benefit, attracting high-quality candidates to serve on the board. Indemnification insurance allows the corporation to protect the board members’ personal finances without paying directly out of pocket.
Directors and officers liability insurance provides protection for the individuals that serve on the board of directors. If the individual is sued, rather than the corporation or board as a whole, their personal assets are used to pay the damages. While indemnification is the preferred method of coverage, it is not always possible due to the specifics of the situation. D&O liability then pays the legal costs and damages up to the policy limits.
Corporate liability insurance provides coverage for legal defenses and damages when the corporation as a whole is sued. Private organizations can typically get broader coverage than their public counterparts.
Policy Options for Massachusetts Business
As with other insurance policies, your directors and officers coverage will face limitations and exclusions. You should understand the specifics of your policy and be sure they align with your needs and goals before you purchase it. Your insurance agent can help determine what policy is best for your corporation.
Additional Coverage Protection
Unfortunately, cyber attacks are on the rise and many businesses in Massachusetts will fall victim to this crime. Without insurance coverage, your business may not be able to recover. Cyber insurance is specifically designed to provide comprehensive coverage for data breaches and other cyber crimes, allowing you to focus on the important task of protecting and supporting your employees and customers while you get your company back to business.
Typically excluded from coverage are criminal acts, such as fraud. Some policies will cover discrimination lawsuits and other employment issues, while others do not. If your policy does not, you may be able to purchase an employment practices liability policy to broaden your coverage. Most policies place limitations on lawsuits that are filed by former board members.
Directors and officers policies are commonly claims-made policies, meaning only claims that are made while the policy is in place can receive insurance protection. However, some corporations choose to purchase additional protection to extend the claims period for a specified time beyond the expiration date of the policy.
Protect Your Decision-Makers
Shareholders elect a board of directors to manage the corporation on a day-to-day basis. This heavy responsibility also carries the risk of getting sued for errors, poor decisions, or other reasons. These expensive lawsuits can take a serious financial toll on both personal and corporate finances. Directors and officers insurance protects the financial interests of Massachusetts corporations when lawsuits are filed.
