Unlike a commercial general liability policy that provides coverage for claims arising from property damage and bodily injury, a D&O policy specifically provides coverage for a “wrongful act,” such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.
For example, a manufacturer told one of its suppliers to increase inventory because they were expecting a large increase in production. As predicted, demand for the manufacturer’s product grew, but the manufacturer increased its inventory with another vendor. The original supplier successfully sued the manufacturer, alleging they suffered damages as a result of having relied on the manufacturer’s promise.
A D&O policy provides defense costs and indemnity coverage to the entity listed on the policy declarations, which may include the following:
- Coverage for individual directors and officers
- Reimbursement to the organization for a contractual obligation to indemnify directors and officers that serve on the board
- Protection for the organization or entity itself