What is Director and Officer Liability Insurance?

Directors (and officers) of corporations often have a layer of protection from personal liability beyond the business judgment rule. Many corporations purchase director and officer insurance (D&O insurance) that provides the corporation (and possibly the director or officer) with indemnification for liability for actions or decisions made in its official capacity. D&O insurance generally only applies to breaches of the duty of care. The irony of this situation is that shareholder funds are used to purchase insurance protecting officers and directors from personal liability to shareholders.

Note: Public policy and state statutes often limit indemnification of officers who breach the duty of the loyalty to the corporation.