Running a business puts your personal assets at risk if something goes wrong. Directors and officers (D&O) insurance protects you and other company leaders from lawsuits that could cost hundreds of thousands of dollars out of your pocket when people sue you for business decisions. You can get D&O insurance as a standalone policy or bundle it with other business insurance, like employment practices liability (EPL) or cyber liability.
D&O Insurance
Updated: July 31, 2025
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Key Takeaways
Directors and officers (D&O) insurance protects executives and other business leaders from paying lawsuit costs out of their own pockets.
D&O insurance's three coverage types protect you personally (Side A), reimburse your company (Side B) and cover company lawsuits (Side C).
The coverage you need depends on your business structure, personal assets at risk and previous legal disputes.
What is D&O Insurance?
D&O Insurance: Coverage Types
D&O insurance has three coverage areas that work together to protect you and your company:
Side A Coverage
Pays your legal costs directly when your business can't help you, like if it runs out of money or goes under while the lawsuit is ongoing. It matters most for small businesses with tight cash flow or financial uncertainty.
Side B Coverage
Pays back your company when it covers your legal defense costs and settlements on your behalf (called indemnification). It protects your business's cash flow so defending executives doesn't impact daily operations. It's valuable for profitable businesses that can afford to pay upfront but want reimbursement.
Side C Coverage
Covers your company's legal costs when someone sues you and your business for the same issue. It happens when people blame both you personally and your company for a business decision. Companies with multiple owners, partners or investors benefit most from this coverage area.
Getting all three coverage types gives you the best financial protection, but it isn't mandatory. Tell your insurance agent which combination makes sense for your business structure and budget.
FINANCIAL PROTECTION BEYOND D&O LIABILITY INSURANCE
Having the best business insurance for your company means getting more than just a D&O policy. You'll need several coverage types working together, such as:
What Does D&O Insurance Cover?
D&O insurance protects officers and directors from lawsuits related to their management decisions, but it doesn't cover everything. These examples show when your policy will help and when you'll need other types of business insurance:
Business partners claim executives made misleading financial statements. | ✅ | A business partner sues your company's president after discovering he hid $50,000 in debt during partnership negotiations. D&O insurance pays for legal defense and any settlement costs. |
Employees sue executives for workplace harassment. | ❌ | A restaurant manager sues the company president for sexual harassment. D&O insurance doesn't cover employment issues like this. You'd need employment practices liability (EPL) insurance instead. |
Business partners challenge major decisions that lost money. | ✅ | Your business partner sues you and other company officers after you approved spending $100,000 on equipment that never worked properly. D&O insurance covers lawsuits about business decisions, even when they turn out badly. |
Executives face criminal charges for illegal business practices. | ❌ | Police arrested the CEO for tax fraud, and the government imposed $500,000 in fines. D&O won't help with criminal charges or government penalties because the policy excludes intentional illegal acts. |
Creditors sue executives over hidden company debts. | ✅ | A bank sues your CFO for allegedly concealing $300,000 in debt before they approved a business loan. D&O covers lawsuits about how executives handle financial reporting. |
Government agencies fine executives for breaking regulations. | ❌ | OSHA fines your manufacturing company and its safety director $50,000 for workplace safety violations. Government fines are usually not covered by D&O insurance. |
Former executives face lawsuits for past decisions. | ✅ | A former business partner sues a director who left your company two years ago for decisions she made while serving on the board. D&O covers former executives as long as the company maintains coverage. |
Business owners claim executives took excessive personal compensation. | ❌ | A minority owner sues company officers for approving $200,000 in bonuses they claim were illegal personal profits. D&O policies exclude claims about executives improperly enriching themselves. |
Competitors sue executives for false business statements. | ✅ | A rival company sues your CEO for publicly claiming their product was "dangerous and defective" at an industry conference. D&O covers business communications made in executive roles. |
Executives face lawsuits over data security failures. | ❌ | Customers sue company leaders after hackers steal 10,000 credit card numbers, claiming executives failed to protect their data. D&O policies exclude cyber-related claims, so you'd need cyber liability insurance. |
How Much D&O Insurance Do You Need?
D&O insurance isn't required by law, but that doesn't mean you should skip it. Even small businesses face serious financial risks when executives get sued for business decisions.
Your coverage amount should match your specific risk level and business situation, so consider these when choosing coverage limits:
- 1
Coverage structure options.
Most small businesses get A+B coverage (protects you and reimburses your company), while adding coverage C provides additional financial protection for the company itself. A-only coverage costs less but leaves your business completely exposed.
- 2
Your business size and revenue.
Higher revenue companies face bigger lawsuit targets, but even small businesses can face costly legal defense regardless of company size.
- 3
Your business structure and the number of decision-makers.
Companies with multiple partners, investors, executives, or board members face more potential disputes and lawsuit targets than sole proprietorships, though even single-owner businesses need protection for management decisions.
- 4
Your personal assets at risk.
Consider what you'd lose if someone successfully sues you personally for business decisions, since small business owners often have personal guarantees and assets tied to the company.
- 5
Partnership or investor relationships.
Business partnerships and outside investors create more opportunities for disputes, but even family-owned businesses can face conflicts between relatives.
- 6
Previous legal disputes or industry regulations.
Companies with a history of business conflicts may need higher coverage limits, though even businesses without prior lawsuits can face unexpected claims from employees, partners or regulatory agencies.
Talk to an insurance agent before getting business insurance. They can help you assess your business needs and choose the appropriate limits.
D&O Liability Insurance: Bottom Line
D&O insurance protects your personal assets when business decisions lead to lawsuits. Understanding Sides A, B and C coverage helps you choose the right protection level. Consider your business size, structure and legal history to gauge coverage that fits your budget and risk profile.
D and O Insurance: FAQ
We've answered the most frequently asked questions about directors and officers (D&O) coverage below:
How much does D&O insurance cost for small businesses?
D&O insurance costs vary widely based on your company size, revenue and claims history. Many small businesses find coverage more affordable than expected when they compare it to the potential lawsuit costs, which often reach hundreds of thousands of dollars. Get quotes from different companies since pricing can differ between carriers.
When does D&O insurance coverage start?
Coverage starts on your chosen policy date. D&O insurance uses a "claims-made" structure, which means it covers lawsuits filed during your policy period for decisions you made while you had coverage. If someone sues you in 2025 for your decision in 2024, you're covered as long as you had D&O insurance in both years.
What's the difference between D&O insurance and general liability insurance?
D&O insurance protects you personally when someone sues you for management decisions, while general liability covers your business for things like customer injuries and property damage. D&O pays legal costs when people challenge your business choices, like budget approvals or strategic decisions. General liability handles physical accidents. Most small businesses need both types.
Can I get D&O insurance if someone sued my business before?
Yes, previous lawsuits don't automatically disqualify you from getting D&O insurance. It will likely increase your premiums and require higher deductibles, but insurers will consider your current risk management practices and any improvements you've made since then. Being honest about previous issues during the application process helps ensure you get proper coverage.
Do I need D&O insurance if I'm the only owner of my business?
Even single owners need D&O insurance because you still make management decisions that can trigger lawsuits. Employees, customers, creditors or business partners can sue you personally for decisions about hiring practices, contract negotiations or financial management. Your personal assets remain at risk regardless of your business structure, especially if you have employees or business loans with personal guarantees.
How long does a D&O insurance claim take to resolve?
Depending on the complexity of the case, D&O claims typically take several months to a few years. The good news is that your insurer provides immediate legal defense once you report the claim, so you get protection immediately. Simple cases involving clear coverage may settle relatively quickly, while complex disputes naturally take longer.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.