Why Your Law Firm Needs Directors and Officers Liability Insurance
The primary role of Directors and Officers insurance for law firms is to maintain financial stability, provide the necessary resources, direction, and vision to help accomplish the goals and mission of the firm. The unique nature of law firm presents Directors and Officers with difficult challenges in performing this role.
Whether you are appointed or elected to sit on the board of your law firm, you assume a level of responsibility for the organization. This responsibility is called a standard of care. If your action as a board member falls below the standard of care, you could be sued and held liable for any resulting damages.
Remember, Directors and Officers Liability Insurance for law firms is not part of the general liability coverage that most entities purchase. Directors and Officers Liability insurance is often confused with Professional Liability insurance or Errors and Omissions coverage. However, the two are not the same.
While it does happen, we don no recommend your law firm defend itself in these matters. Having Directors & Officers Insurance is a good risk transfer technique at a relative low cost.
Typically Directors and Officers Liability Insurance will cover administrative, civil, regulatory proceedings (based on actual or alleged acts), errors, omissions, misstatements, neglect, or breach of duty committed, or allegedly committed, by a director or officer while acting within the scope of their duties. The policy also reimburses nonprofit corporations for any indemnification that their bylaws or state laws require them to provide to the Directors and Officers.
Key Features Of Directors And Officers Liability Insurance For Law Firms
- Entity (law firm) coverage: Most policies now include coverage for claims made against the organization itself, even if Directors or Officers are not included in the claim.
- Limits of liability: There are a variety of coverage limits offered by most insurance companies. These can range from $1,000,000 up to $5,000,000 depending on the size of the nonprofit.
- Duty to defend: Most policies are committed to fair resolution of claims and the insurance company has the obligation to defend.
- Defense coverage: Many Directors and Officers Liability Insurance policies offer defense coverage.
- Claims made coverage: All Directors and Officers Liability Insurance policies are written on a “claims made form”. Coverage only applies to claims that occurred and are reported during the policy period. Prior acts coverage can be added to extend to claims that occurred prior to the inception of the policy, under certain conditions and terms.