An officer of the company has violated his or her discretion (conflict of interest). A volunteer with a criminal record stole money during a fundraiser. Shareholders are unhappy with the company's performance and blame the financial mismanagement of its executives...
All of these situations can lead to a lawsuit against the officers and board of directors. The directors and officers of a corporation must always act honestly and in good faith. They must also exercise due diligence. If they fail in any of these duties, injured parties can sue the company and its officers personally.
By purchasing Directors' and Officers' Liability insurance, you will be protecting the personal liability of senior management and the Board of Directors. The insurance will cover legal expenses and any judgment in favour of the plaintiff involving the liability of one or more persons covered by this insurance, up to the amount stated in the policy.
Coverage differs from insurer to insurer and from policy to policy, depending on the type of company. Directors & Officers insurance does not cover gains made by the insured from his or her position, fraud, insider trading lawsuits, or bodily injury and property damage, which will be covered by other insurance. Don't forget to list all the people you want to cover!