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

Get heaping discounts to books you love delivered straight to your inbox. We’ll feature a different book each week and share exclusive deals you won’t find anywhere else.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Create your business plan in half the time with twice the impact using Entrepreneur's BIZ PLANNING PLUS powered by LivePlan. Try risk free for 60 days.

Latest on Entrepreneur

Entrepreneur Media, Inc. values your privacy. In order to understand how people use our site generally, and to create more valuable experiences for you, we may collect data about your use of this site (both directly and through our partners). By continuing to use this site, you are agreeing to the use of that data. For more information on our data policies, please visit our Privacy Policy.