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Damage Control

If you've got shareholders, you better get D and O liability insurance.

This story appears in the April 2000 issue of Entrepreneur. Subscribe »

Doing business is downright risky, as seasoned entrepreneurs well know. And sometimes, when business leaders take risks, they end up making mistakes that cost their company-as well as their stockholders and investors-substantial amounts of money. That's where directors and officers (D&O) liability insurance comes in: In the event those stockholders and investors decide to sue, the business owners may find themselves liable. David Ezra, an attorney with Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone in Irvine, California, answers why you need D&O coverage, and more:

  • What is D&O liability insurance? "It provides coverage for economic harms that result from wrongful acts or mismanagement by corporate directors and officers," Ezra explains. Examples includes wrongful acts that can be considered negligence and breaches of fiduciary duty where the director doesn't act in the best interests of the shareholders. The particular policy, as well as the laws of the state where it's issued, determine whether willful wrongdoing and criminal conduct may be covered.
  • Isn't any of this covered by general liability policies? Probably not. "General liability policies normally apply to bodily injury and property-damage-type claims, and certain other tort claims," Ezra says. "They don't cover pure economic losses, such as the losses that directors and officers can be sued for when accused of mismanagement."

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