Directors and officers of publicly traded corporations, private companies, SMEs, or non-profit organizations (NPO) are personally exposed to unlimited financial liability. They all share the same legal obligations.
As such, it is the responsibility of the company and board of directors to protect themselves against potential financial loss with a D&O insurance.
On the other hand, professionals providing advice or services (e.g. lawyers, architects, engineers, accountants, surveyors, auditors, etc), face the possible risk of legal actions against themselves by their clients.
This may happen in the event of an alleged breach of professional duty of care or duty by reason of a negligent act, error or omission. In this case they would benefit from a professional indemnity insurance.
In this article we will further explain the difference between a Director and Officer insurance and a Professional Indemnity insurance.
What is a D&O insurance?
A D&O insurance covers directors and officers' liability. It provides financial assistance to fund the defence costs of company directors or senior managers for a claim made against them about an alleged mismanagement.
This type of insurance coverage was created to protect executives from financial losses if they are sued as a result of serving as a director or an officer of a business or other type of organisation.
It can also cover legal fees and other costs the firm may incur as a result of the lawsuit. As such, it is often implemented in the corporate governance strategy of many companies.
For example, in the case where a firm misrepresented a company’s financial activity in order to get funding from an investor, the investor can later sue the firm and its executives for the false report.
In this situation, a D&O insurance would cover the legal costs and expenses of the lawsuit as well as the potential fines coming from this judgement or settlement.
What is a PI insurance?
A Professional Indemnity insurance resembles a D&O insurance in that it protects a company's employees when dealing with clients.
A Professional Indemnity insurance also reduces personal liabilities of professionals such as consultants. Indeed, it is designed for individuals and companies that provide an advisory and professional service.
Although you may feel confident in the quality of work that you are producing for your clients, all businesses are constantly exposed to claims being made against them if the client is not satisfied with the service.
Expenses coming from settling the claims might financially weaken a company and negatively affect its future business activity. This is especially true for people working as consultants.
Thus, a PI insurance protects professionals from claims made against them by a customer due to a mistake made when working with them.
How is a D&O and Professional Indemnity insurance different?
The main difference between both insurance policies is that the first is designed to financially help senior executives in the event their company is subject to legal costs resulting from a lawsuit, while the latter protects mistakes made by a business, negatively impacting its clients.
Thus, one of the main differences between both insurance policies is the capacity in which the wrongful act, which results in a lawsuit, is done.
How can BLACAZ. help you?
BLACAZ is an insurance intermediary with an expertise in a wide range of policies.
Closely working with many insurance companies, our team can help your business choose the best protection available when it comes to professional liability insurance and directors officers liability insurance.
Because accidents happen when we expect them the least, it is crucial for companies and professionals to reduce their legal liability and financial exposure in the event of a lawsuit from a customer.
You may contact us today so we can better assess your current situation and insurance needs as well as answer all your questions regarding D&O and PI insurance policies.