Understanding the key differences between Directors & Officers and Errors & Omissions insurance is crucial for businesses to properly protect against distinct liability exposures they face.

Coverage and common claims:

Directors & Officers insurance protects company leaders against claims alleging wrongful acts in their managerial roles, including breach of fiduciary duty, mismanagement, and regulatory violations. Errors & Omissions insurance covers claims arising from professional services or product failures that cause financial harm to clients, such as software bugs or service disruptions.

When you need each:

D&O insurance is essential as soon as a company has formal leadership structure with directors, officers, or board members making strategic decisions. E&O insurance becomes critical when a company begins delivering products or services to customers and faces potential liability from professional mistakes or product failures.

Typical coverage limits:

Both insurance types typically offer coverage limits ranging from $1 million to $10 million or more, depending on company size and risk exposure. The specific limits chosen should reflect the potential financial impact of claims, with larger companies and those in high-risk industries often requiring higher coverage amounts.

Understanding D&O protection

Directors & Officers insurance specifically addresses the personal liability risks faced by company leadership. This coverage becomes particularly important when leaders make strategic decisions that could later be challenged by shareholders, regulators, or other stakeholders. The insurance provides both defense costs and potential settlements, protecting personal assets of directors and officers.

E&O insurance essentials

Errors & Omissions insurance focuses on protecting companies from claims related to their professional work or products. For technology companies, this often involves coverage for situations where software bugs, system failures, or service interruptions cause financial losses to customers. This type of coverage is especially critical for companies whose products or services directly impact their clients' business operations.

Risk management considerations

While both insurance types provide important liability protection, they address fundamentally different risk exposures. D&O insurance protects against governance-related claims, while E&O insurance covers operational and professional service failures. Many companies need both types of coverage to comprehensively protect against the various liability risks they face in today's business environment.

The scenarios described are offered only as examples. Coverage depends on the actual facts of each case and the terms, conditions and exclusions of each individual policy. Anyone interested in the above product(s) should request a copy of the standard form of policy for a description of the scope and limitations of coverage.

What does D&O insurance cover?

D&O insurance protects company directors and officers against claims alleging wrongful acts in their managerial roles. This includes coverage for breach of fiduciary duty, mismanagement, and regulatory violations. The insurance provides both defense costs and potential settlements, protecting the personal assets of directors and officers when their strategic decisions are challenged by shareholders, regulators, or other stakeholders.

What does D&O insurance not cover?

D&O insurance does not cover claims related to professional services or product failures. It also typically excludes intentional criminal acts, fraud committed for personal profit, bodily injury or property damage claims, and employment practices violations (which require separate coverage). Additionally, it doesn't cover operational mistakes or errors in delivering products or services to customers.

How much D&O insurance is enough?

D&O insurance coverage limits typically range from $1 million to $10 million or more, depending on company size and risk exposure. The appropriate amount should reflect the potential financial impact of claims against the company's leadership. Larger companies and those in high-risk industries often require higher coverage amounts. Factors to consider include company revenue, industry sector, number of shareholders, and regulatory environment.

What does errors and omissions insurance not cover?

E&O insurance typically does not cover intentional wrongful acts, criminal activities, bodily injury or property damage, employment-related claims, or breach of contract disputes. It also usually excludes claims related to governance and management decisions (which fall under D&O coverage), cyber attacks and data breaches (requiring separate cyber liability coverage), and claims arising from activities outside the company's professional scope.