Directors and Officers Liability Insurance is designed to cover which type of risk?

• A. Wrongful acts
• B. Intellectual property infringement
• C. Environmental violations
• D. Traffic violations

Answer: (A)

Directors and officers liability coverage protects individuals serving in governance roles from financial losses due to claims of wrongful acts they commit in their official capacity. It covers defense costs and settlements or judgments arising from lawsuits or regulatory actions alleging mismanagement, errors in judgment, breaches of fiduciary duty, or misleading statements related to their duties. This emphasis on alleged governance-related wrongs is what makes it the appropriate coverage for this risk. For example, if a board member signs off on a transaction that harms shareholders and a suit follows alleging breach of fiduciary duty, D&O would help with the defense and any resulting damages. Intellectual property infringement, environmental violations, or traffic violations involve different risks and would typically be addressed by other types of coverage, not the core D&O policy.