All of the following are covered under directors and officers coverage EXCEPT

Directors and officers (D&O) liability insurance protects the personal assets of corporate directors and officers, and their spouses, in the event they are personally sued by employees, vendors, competitors, investors, customers, or other parties, for actual or alleged wrongful acts in managing a company.

The insurance, which usually protects the company as well, covers legal fees, settlements, and other costs. D&O insurance is the financial backing for a standard indemnification provision, which holds officers harmless for losses due to their role in the company. Many officers and directors will want a company to provide both indemnification and D&O insurance.

Directors and officers are sued for a variety of reasons related to their company roles, including:

• Breach of fiduciary duty resulting in financial losses or bankruptcy
• Misrepresentation of company assets
• Misuse of company funds
• Fraud
• Failure to comply with workplace laws
• Theft of intellectual property and poaching of competitor’s customers
• Lack of corporate governance

Illegal acts or illegal profits are generally not covered under D&O insurance.

Does Your Business Need D&O Coverage?

It’s a common misconception that D&O claims are mostly a public company phenomenon. In fact, a recent Towers Watson survey showed that public, private, and non-profit companies all face D&O litigation risks.

Any business with a corporate board or advisory committee should consider investing in D&O insurance, including non-profit organizations. Your company does not have to post revenues in the tens of millions of dollars for your directors and officers to be personally sued over their management of company affairs. In fact, smaller businesses with fewer assets may need the protection just as much as large, deep-pocketed corporations.

The primary insurance carrier provides the “primary layer” of D&O coverage, for example, $30mn. Once the primary limit of liability is exhausted by payment of loss, the next layer kicks in, up to a certain amount, and so on. As the first policy to respond to a claim, the primary insurer carries the greatest risk exposure, therefore primary policy premiums are higher and typically reduce higher up the tower.

Another way to risk-share is through proportional coinsurance, also known as quota share. With this arrangement, insurers will essentially split an excess layer, and the premium is proportionally allocated depending on each insurer’s percentage of the risk. Claims would be settled likewise. 

A Commercial General Liability (CGL) policy protects your business from financial loss should you be liable for property damage or personal and advertising injury caused by your services, business operations or your employees. It covers non-professional negligent acts. Understanding this coverage is an important first step in managing CGL risks.

Here are just a few examples of situations in which your business could be responsible for paying various costs, such as medical and legal expenses, as well as compensatory and punitive damages:

• While visiting your business, a customer trips on loose flooring and is injured.
• An employee in your painting or construction business accidentally leaves water running, causing substantial damage to a customer’s home.
• A class action lawsuit is filed against your business, alleging advertisements constituted misleading information.

What commercial general liability insurance covers

A CGL insurance policy will usually cover the costs of your legal defense and will pay on your behalf all damages if you are found liable—up to the limits of your policy. CGL coverage is one of the most important insurance products, due to the negative impact that a lawsuit can have on a business and because such liability suits happen so frequently. Standard CGL includes:

Coverage A: Bodily Injury and Property Damage Liability

Bodily injury and property damage coverage provides protection against losses from the legal liability of insureds for bodily injury or property damage to others arising out of non-professional negligent acts or for liability arising out of their premises or business operations. Mental injuries and emotional distress can be considered bodily injuries, even in the absence of physical bodily harm.

Workers compensation and employment practices liability insurance are excluded but can be purchased as separate policies. In addition, pollution liability is excluded and can be purchased as an endorsement. However, this coverage is very limited, and high-risk businesses should consider purchasing a separate pollution liability policy. Liquor liability, professional liability and other risks may also be excluded. An insurance professional can help you to determine endorsements that are right for your type of business.

Coverage B: Personal and Advertising Injury

Personal and advertising injury liability protects an insured against liability arising out of certain offenses, such as:

• Libel
• Slander
• False arrest
• Infringing on another’s copyright
• Malicious prosecution
• Use of another’s advertising idea
• Wrongful eviction, entry or invasion of privacy

Coverage C: Medical Payments

Limited coverage for medical payments includes payments for injuries sustained by a non-employee caused by an accident that takes place on the insured’s premises or when exposed to the insured’s business operations. Medical payments coverage can be triggered without legal action. This provides for prompt settlement of smaller medical claims without litigation. It is included in the CGL policy and pays for all necessary and reasonable medical, surgical, ambulance, hospital, professional nursing and funeral expenses for a person injured or killed in an accident taking place at the insured’s premises or arising from business operations. There is no defense or legal liability coverage—as there is with bodily injury and property damage (Coverage A) and personal and advertising liability (Coverage B) —since coverage is provided on a no-fault basis.

Purchasing commercial general liability insurance

You can purchase commercial general liability insurance as a stand-alone policy, as part of a Business Owners Policy (BOP) or as part of a Commercial Package Policy (CPP). Consult with your insurance professional about what type of coverage you need and how much. If your general liability policy, BOP or CPP do not provide sufficient coverage, you may want to consider purchasing a commercial excess (umbrella) policy, which will provide additional protection.

Additional liability coverages to consider

Depending on your type of business, you may want to consider additional liability coverage that is not part of commercial general liability insurance. Talk with your insurance professional, risk manager and/or legal counsel regarding the types of coverages that you may need. The following is not exhaustive, but key types of insurance to consider include:

Directors and Officers liability

Directors and officers liability insurance protects past, present and future directors and officers of for-profit or nonprofit companies from damages resulting from alleged or actual wrongful acts they may have committed in their positions. The policy provides protection in the event of any actual or alleged error, misstatement, omission, misleading statement or breach of duty. In addition, some policies extend the same coverage to employees.

Liquor liability

Liquor liability insurance is business coverage that protects your business against loss or damages claimed as a result of a patron of your business becoming intoxicated and injuring himself or others. If your business manufactures, sells, serves or facilitates the use or purchase of alcohol, then your business will likely need this coverage. Liquor liability coverage may be sold as an add-on to a commercial liability policy or as a stand-alone policy. But, if you do not purchase this extra coverage, your standard commercial general liability policy does not protect your business against liquor-related claims.

Pollution liability

This type of coverage provides industrial, commercial and agricultural property owners, managers and developers with a broad range of pollution liability protection for gradual, as well as sudden and accidental, first-party and third-party environmental liabilities. It also protects assets from unforeseen environmental exposures that could have substantial impact on earnings. In addition, it protects against unforeseen pollution hazards that may lead to bodily injury, property damage or pollution clean-up costs.

Which of the following would not be excluded under Coverage A of the CGL?

Which of the following is not found in the commercial package policy?

Which of the following would be covered by a commercial package policy?

Which of the following would not be considered an insured under a commercial general liability policy?