Growth Strategies

Bad Judgment?

Even top execs can make mistakes. With the right coverage, it's no problem.
Magazine Contributor
2 min read

This story appears in the September 2003 issue of Entrepreneur. Subscribe »

Savvy entrepreneurs hire smart executives to run their companies--but what happens if one of those directors or officers makes a mistake and you get sued? With directors and officers (D&O) liability insurance, you--and they--are protected.

According to Anita Setnor Byer, president of Setnor Byer Insurance & Risk in Fort Lauder-dale, Florida, D&O "covers directors and officers against wrongful acts typically described as bad business judgment." Such acts are not covered under your general liability insurance. "The exposure of directors and officers is separate and distinct, because they are stewards of the enterprise," Byer says.

D&O would kick in if, for example, one of your directors or officers unwittingly used intellectual property belonging to another company or individual, if they committed a breach of confidentiality that caused economic damage, or if they just made a bad business decision.

How can you tell if your company needs D&O coverage? You should do your own risk assessment, but Byer says you are probably a candidate if your company is very visible or active on the Internet (which increases your likelihood of being a litigation target), if you're in an aggressive growth mode, or if your directors and officers are being relied upon as a fiduciary (meaning they are in a position with a high expectation of good decisions and trust).

D&O policies are complex; when you shop for this type of insurance coverage, be sure to do it with an agent who regularly writes the coverage and understands it well.

Jacquelyn Lynn is a business writer in Orlando, Florida.

More from Entrepreneur

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Are paying too much for business insurance? Do you have critical gaps in your coverage? Trust Entrepreneur to help you find out.
Get Your Quote Now

Whether you are launching or growing a business, we have all the business tools you need to take your business to the next level, in one place.
Enroll Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.