Corporate liability insurances are of different types and services with distinct purposes. Thus, you can find more than one business insurance with the major insurance-selling companies. Among the many liability policies, the D&O and E&O policies are highly common. Businesses and organizations of all sizes and capacities are focusing on these policies to mitigate the risks in business operations. The Indian corporate market is also not far behind in employing such policies to safeguard liabilities and assets while combating litigations.
In this article, get to know in detail about the D&O and E&O policy by focusing on the differentiating aspects of the insurance plans.
What is the D&O policy?
The D&O policy stands for Director and Officers’ liability insurance. It is a business liability policy that caters to the high-ranked officials and directors in an organization. If there are any litigations filed against the supreme rank holders of the organization, they have the right to defend themselves. The lawsuits can arise due to various instances of inapt actions in executing the corporate responsibilities and duties. In such times, the individuals can seek the legal path to defend themselves from the allegations. The D&O policy helps cover such costs and settlements.
What is the E&O policy?
The E&O policy stands for Errors and Omissions insurance. This policy is also known as Professional liability insurance and is quite popular in the corporate world. In this insurance, the coverage is valid for the company or business, purchasing the liability plan. It is liability insurance that safeguards the business when there are legal allegations of failed professional services. The failure in service can be due to an error in the action or negligence. The lawsuits filed against such actions require damage management through the legal course. The E&O policy meets the expenses and covers defense charges and settlement expenses.
The difference in the claims
When you figure out differences between two insurances (personal, group, or business), the primary differentiating ground is the claim types. While the ultimate aim of the liability policies can be the same, which is paying for the expenses of legal proceedings and penalties, the inception of the claims varies at large. Read along to understand the different claims for the two insurance plans.
For D&O insurance: The D&O policy covers the professionals holding the supreme designations in the organization. They are the policyholders and, the insurer pays directly for their defense cost. Employees, shareholders, consumers, and anyone who has been affected financially for any wrongful action of the individuals can file a legal case against them. The allegations can be the following types, which also define the different types of claims covered by the D&O insurance –
- Wrongful business action, causing monetary losses
- Misjudgment and misstatements by the director or officer
- Irregularities in managing corporate funds
- Breach of corporate laws or acts
- Unauthorized access or disclosure of business assets or intellectual corporate property
- Discrimination and unjustified employment practice
For E&O Insurance: Errors and Omissions policy helps the organization to meet the legal expenses when there is a lawsuit filed against the name of the company. In this policy, the versatility in the claim types is limited, unlike the D&O policy. Following are the varied claims covered by the E&O policy –
- Service failure or mismanagement, leading to monetary loss for the consumer
- Operational flaws, causing financial loss
- Malpractice and negligence of duties
- Settlement fees and penalties for erroneous actions or mistakes
The difference in the policies based on the exclusions
For the D&O policy, the exclusions in coverage are – Intentional or willful action with personal profit interest, fraudulence in business fund handling, slander or defamation charges, insured v/s insured coverage, dishonesty, etc.
For the E&O policy, the exclusions are – Cheating the consumer or breaking the law, property damage for which the business or organization is responsible, harassment claims, etc.
When do you need the policies?
The D&O policy is essential for the high-rank holder professionals to protect their assets while defending themselves in the legal proceedings. When a lawsuit gets filed against the individuals directly, the policy comes useful for providing financial support.
The E&O policy is essential for the corporate entity (or business) to protect the finances that could get drained during the legal defense procedure. The E&O policy pays the company directly and secures the corporate assets during times of need.
Benefits of D&O policy
- Safeguards the personal assets of the high-ranked individuals working at the organization
- An attractive offer to invite competent professionals for the executive roles in the company
- Liability coverage for cyber breaches and law breaches
- Protection from bankruptcy and overall risk mitigation
- Invite better chances of international investments and services
Benefits of E&O policy
- Optimal security for the business during financial volatility and losses
- Excellent tool for damage and reputation management
- Solution for meeting corporate penalties and legal fines
- Protection from the unintentional mistakes by professionals
- A ready plan for risk management
An example to sum it up
Suppose a financial advisor working in a corporate firm advised a client that did not turn into a fruitful outcome. The client faced a loss and filed a case against the professional advisor. It was an erroneous action or service from a professional, for which the company can apply for E&O coverage.
Suppose the director of the same corporate firm did not perform their duty, for which the stakeholders of the company faced a monetary loss. The litigation filed against the director will qualify for a D&O claim as the claim rises for wrongful action of the professional, making a loss to the shareholder of the company.
The elementary difference lies in the inception of the claims. The E&O policy deals with service-related claims and, the D&O policy deals with the executive officer’s decision or action-related claims.
Find what you need with PlanCover.
PlanCover, the leading insurance broker in the country, brings both D&O and E&O policies for businesses and companies. You can know in detail about the insurance policies through their qualified team of insurance experts. Connect to them to clarify any doubt you have in mind before purchasing any of the corporate insurance policies.