What is the difference between D&O and E&O Insurance?


When you’re doing business, it’s always prudent to carry the proper liability insurance to protect yourself and your business. Almost anybody can be sued, and defending yourself in court for allegations of negligence or misconduct, whether there is any merit to the claims or not, can be a costly proposition. Even settling out of court can be a business-killer. However, it’s important to carry the right kind of insurance coverage. Different types of insurance cover different types of potential liability, and you can inadvertently end up with a costly gap in coverage if you misjudge your needs.

Confusion often arises over two similar types of insurance, Directors & Officers (D&O) and Errors & Omissions (E&O). Most people are familiar with E&O insurance, even if they don’t realize it, because this is the type of insurance that protects professionals if they unintentionally make a mistake or fail to perform their work properly. Well-known examples include malpractice insurance for doctors or lawyers, although they are far from being the only types of professionals who benefit from carrying such coverage.

D&O insurance is similar to E&O insurance in that it offers coverage in the case of unintentional mistakes or negligence, but the difference is that it covers people such as the board of directors and high-level executives—the principal decision-makers of an organization—if they are personally sued over allegations that their mismanagement of the company led to harm or loss. These types of claims are typically not covered under a traditional E&O policy, since the loss does not result from the service the company provides. Without coverage, a director’s or executive’s personal assets can be at risk due to their business decisions.

D&O coverage can kick in if a company and its directors are sued for breach of fiduciary duty leading to financial losses, misuse of company funds, failure to comply with workplace laws, misrepresenting company assets, or a host of other actions or inactions related to how the company is run. If something goes wrong in your business and someone thinks it happened because you didn’t act in good faith or in the best interests of the company, a D&O policy is what you need in the case you are sued.

D&O insurance is not only for publicly owned companies, which can be at risk for being sued by shareholders. Groups that should consider this type of coverage include private companies, family-owned businesses, and nonprofit organizations as well. In fact, smaller companies and organizations with fewer assets can be more vulnerable to a D&O claim, as they are less likely to have the resources to fund a legal defense without insurance.

If you’re not sure if the insurance you have provides the coverage your business needs, the time to reevaluate your policies is now. The expert agents at Stearns and Co. can help assess your vulnerabilities and advise you on the type and level of insurance protection you need. Contact us today for an evaluation.