Key takeaways
- D&O insurance can be essential for all organizations because leadership decisions can trigger costly lawsuits and personal liability.
- Common misconceptions can result in coverage gaps, leaving businesses exposed to claims from shareholders, employees, regulators, and even family members.
- 2026 priorities include cyber and AI risk management and D&O insurance coverage optimization.
Insurance is a part of doing business, but when it comes to protecting leadership, many organizations may overlook one critical safeguard: Directors and Officers (D&O) liability coverage.
In today’s environment of heightened regulatory scrutiny, rising litigation and evolving cyber and artificial intelligence (AI) risks, even privately held and nonprofit organizations face significant exposure. In fact, 61% of insurers reported an increase in litigation in the last five years, and the courts are increasingly ruling in favor of claimants1. These trends underscore why D&O coverage is no longer optional – it’s essential.
Why D&O insurance matters
Directors and officers have a fiduciary duty to make sure their organization is managed appropriately. Even the perception of a breach can lead to lawsuits alleging mismanagement or improper business practices. Misconceptions about D&O liability insurance can cause business leaders to think twice about purchasing a policy – at their own risk. This article provides an overview of D&O liability, breaks down five common misconceptions about this type of policy, and demonstrates the benefits of being protected.
What is D&O liability insurance?
At its core, D&O insurance coverage helps protect the organization and its leaders by covering defense costs, settlements, and judgments tied to allegations of wrongful acts in leadership decisions. Additionally, it can also help protect the personal assets of directors and officers if the entity is unable to indemnify them.
Five D&O insurance misconceptions that could put your business at risk
Misconception #1: “We’re a privately held company and don’t need D&O.”
Executives of private companies have a duty to act in the best interest of the organization and make decisions free of conflicts of interest. When that obligation is perceived to be breached, lawsuits can come from many different directions – customers, employees, creditors, competitors, vendors, and minority shareholders – especially during times of economic stress or strategic change.
Tip: Make sure your D&O policy addresses shareholder disputes and creditor claims, but understand its limits:
- Shareholder disputes: D&O policies generally cover claims from minority shareholders that don’t have board representation or voting rights. However, they do not cover infighting among directors, officers, or controlling shareholders.
- Employment-related claims: These are generally excluded under D&O policies; however, they are covered by Employment Practices Liability (EPL) insurance. For private companies, EPL is often purchased as a package with D&O; public companies typically structure coverage differently.
Misconception #2: “We’re a family-run business, so our risk is low.”
Family members may trust each other implicitly, but disputes can still happen – and when they involve relatives, they can be more contentious and costly. D&O coverage applies only to lawsuits brought by outsiders, such as minority shareholders without board representation or voting rights, so it’s important to watch for and avoid any attempt by the insurer to add a family claims exclusion to the D&O policy.
Tip: Formalize board policies, document decision-making, and review coverage to match your leadership structure.
Misconception #3: “We’re a nonprofit and coverage feels unnecessary.”
Nonprofits face many of the same exposures as for-profit organizations. Questions about how funds are handled, whether donor promises can be fulfilled or whether proper oversight exists can all trigger claims. Volunteer conduct and board-level decisions can also lead to litigation. D&O coverage helps protect nonprofit leaders and the organization when governance or fiduciary duties are challenged.
Tip: Confirm volunteer-related coverage and ensure limits reflect your risk tolerance given the entity’s fundraising scale and public profile.
Misconception #4: “We’ve never had an incident, so why purchase D&O insurance now?”
It only takes one claim to cause lasting financial and reputational damage to both the organization and individual leaders. An initial employment-related claim (e.g., harassment or discrimination) can be followed by a separate D&O claim alleging board-level failures, such as not upholding fiduciary duties, inadequate oversight, or failing to foster an appropriate workplace culture. The absence of prior incidents doesn’t eliminate exposure; it simply means you’ve been fortunate so far.
Tip: Benchmark your limits against current trends and consider tail coverage for major transactions.
Misconception #5: “Our general liability policy will cover us.”
Many companies may assume their general liability insurance offers coverage for any event resulting from their actions or behavior. However, general liability policies are not designed for board decisions or managerial acts. D&O liability insurance addresses distinct exposures, including securities-related actions and governance claims.
Tip: Coordinate D&O with other lines of coverage such as cyber and EPL insurance to avoid any gaps.
Priorities for boards and risk managers
As we look ahead, boards face a rapidly evolving risk landscape. Here are four priorities that should be top of mind:
Cybersecurity and AI oversight
Cyber breaches and vendor risks remain major concerns, and AI adds new challenges like bias and accountability. Strengthen your third-party risk management and incident response plans and ensure board oversight of cyber and AI risks is well documented.
Market conditions and coverage optimization
D&O pricing has stabilized, creating a chance to optimize coverage. Benchmark your limits against current trends and consider higher sublimits to stay protected.
Protect your finances with a dedicated D&O liability insurance policy
Directors and officers at any company — whether public, private, or nonprofit — could be held liable for actions or decisions made on behalf of the organization. Having a dedicated policy could save personal assets, but it’s essential to understand how the policy functions, what it covers and how it interacts with other insurance policies the company might hold.
D&O liability insurance policies can be more nuanced than property or casualty coverage. Working with a broker who specializes in executive risk can help ensure your policy fits your organization’s needs.
Protecting personal and company finances is critical in today’s litigious environment. To learn more about how D&O policies work and find the right fit for your organization, contact your Huntington relationship manager.
