D&O Insurance in NY – Everything you need to know.

D&O Insurance: Protecting Personal Net Worth

Directors and Officers (D&O) Insurance in NY is often called “Personal Net Worth Insurance” because it safeguards the personal assets of key decision-makers within a company.

In New York, D&O insurance protects the personal finances of corporate directors, officers, managers, and their spouses when they are sued for actions taken while managing the business. In many cases, lawsuits name these decision-makers personally, putting their personal assets at risk.

Don’t Think Private Companies Get Sued? Think Again.

Private companies face D&O lawsuits more often than you might expect. Claims can come from employees, vendors, competitors, investors, or customers, alleging that a company leader committed a wrongful act while running the business.

Many business owners mistakenly believe that their general liability or umbrella policies will cover them for these types of claims. However, this isn’t true.

 What General Liability Covers:

• Bodily injury
• Property damage
• Personal injury (such as wrongful arrest, libel, slander, defamation)

What Directors & Officers Liability Covers:

D&O claims are different—they usually involve financial harm caused by wrongful acts, which could include:

• Breach of fiduciary duty
• Misrepresentation or misstatements
• Fraud or poaching employees/customers
• Failing to comply with laws
• Misuse of company funds
• Errors or omissions

It’s also important to know that D&O policies do not cover illegal acts or illegal profits.

How Does a D&O Policy Work During a Claim?

D&O policies operate on a “claims-made” basis, meaning claims must be reported to the insurer as soon as possible. If you delay, you risk losing coverage.

Once a claim is filed, the insurer will either:

• Assign a law firm to handle your case (for policies with a “duty to defend” provision)
• Reimburse you for your legal expenses if you hire your own attorney (for reimbursement policies)

Each D&O policy includes a retention or deductible, which you must pay before the insurance kicks in. The size of the retention varies based on your company’s size, industry, and claims history, with amounts ranging from $5,000 to over $250,000 for larger firms.

Another important aspect to understand is that defense costs are often deducted from your policy limit. For example, if you have $1,000,000 in coverage and spend $200,000 on legal defense, you’ll only have $800,000 left for settlement. Some policies provide extra defense cost coverage, but it’s critical to know this upfront.

How Much D&O Insurance Coverage Do You Need?

While $1,000,000 might sound like a lot of coverage, D&O lawsuits are expensive. Defense costs alone can quickly deplete a policy. For this reason, many companies opt for higher limits—such as $2M, $5M, or more—depending on their risk profile.

Do You Really Need D&O Insurance in NY?

If you’re running a private company, the short answer is yes.  D&O lawsuits are becoming more common, and the severity of claims continues to rise. This risk is even greater if you have investors, a corporate board, or an advisory board. For nonprofits, having D&O insurance is often essential to attract qualified board members.

Without D&O coverage, both your company and its leaders could face financial devastation due to legal costs or settlements.

What Does D&O Insurance Cost?

The cost of D&O insurance depends on several factors, including:

• Type of business
• Number of employees
• Annual revenue
• Financial health of the company

For small businesses with less than $50 million in revenue, D&O coverage typically costs between $5,000 and $10,000 per $1M in coverage. This is a rough estimate, and factors like your industry and the terms of your policy will affect the final price.

Adding Employment Practices Liability and Fiduciary Liability as part of a Management Liability policy can increase the cost but also broaden your coverage. Combining these coverages, along with Cyber or Crime insurance, is often the most competitive option for small and medium-sized businesses.

The Bottom Line

D&O insurance is critical coverage for most businesses, and securing the right policy requires the expertise of a skilled broker. You need someone who understands the nuances of D&O insurance, represents multiple insurers, and can negotiate the best terms for your company.

For more information on D&O insurance, contact me, Gordon Coyle, at 845-474-2924 or email me at [email protected].