Figuring out which insurance policies your organization needs can be tough. After you get past the standard general liability, property, and workers’ compensation policies, the coverages can sometimes blend together, causing confusion on what you really need.
It also doesn’t help when insurance coverages such as errors and omissions (E&O) and directors and officers (D&O) sound like they cover the same thing! And the more you read into a policy’s details, it can get even increasingly confusing.
D&O And E&O: What Is The Difference?
When trying to determine the difference between D&O and E&O insurance coverages, start by reviewing the Insuring Agreement section of the policy. This section will tell you what incidences each policy will cover. For example:
The D&O Insuring Agreement
This example explains that the D&O policy covers three parts:
A. Protects directors and officers when the company cannot indemnify them.
B. Reimburses the insured organization when it indemnifies its directors and officers
C. Covers the organization when its sued in conjunction with its directors and officers
The policy has established that its intent is to protect both an organization and an organization’s leadership for damages caused by “wrongful acts.”
For more information on this type of policy and how it can protect your business or non profit, check out our article, “What Is D&O Insurance.”
Diving a little deeper, all the covered claims from A, B, and C are triggered by a "wrongful act." But what is that? The answer to this question will be the primary difference between this policy and an E&O policy. A D&O policy defines the term as:
Pay particular note to the phrase “…any actual or alleged error, misstatement, misleading statement, neglect, breach of duty, omission or act by the insured person in their capacity as such.”
In short, directors and officers insurance covers individuals and organizations from management decisions that cause harm to the community, employees, shareholders, or investors. Examples of claims that fall into this category are:
Breach of fiduciary duty
Wrongful interference with a contract
Unfair trade practices
Consumer protection violations
Self-dealing and conflicts of interest
Violations of state or federal laws
The E&O Insuring Agreement
As you will see, the insuring agreement for an E&O insurance policy looks very similar to that of a D&O policy.
This policy also covers “wrongful acts”! It’s clear why this can be confusing to many organizations when trying to understand their insurance coverages.
For more information on what E&O insurance is and how it can protect your business or non-profit, check out our blog, “What Is Errors And Omissions Insurance?”
Similarly to D&O, we must go into the definition of “wrongful act” to discover what claims would trigger coverage under this insurance policy:
This policy covers any act, error, omission, neglect, or breach of duty committed in the rendering of your professional services.
Again similar to the D&O policy, this does cover decisions, statements, and advice, but only those decisions, statements, or advice that you give to clients whom you are rendering a professional service to.
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E&O Vs. D&O Coverage In Context
Let’s put the differences between these two types of coverage into context by using an example. If you were an attorney and gave inaccurate advice to a client, which resulted in costing them $250,000 in a lawsuit, that would qualify as an E&O claim. You were rendering professional legal services to a client and made an error that resulted in a claim.
If that same attorney sat on the board of directors of a large company and a shareholder accused the attorney of using his status as a board member to enriching himself by sending company legal business to the attorney’s firm, that would be a D&O claim. The attorney was accused of self-dealing while in his capacity as a board member.
The difference between D&O and E&O insurance can be tricky to understand. From breaking down the definition of “wrongful acts” to reviewing the insuring agreement, we’re here to help. If you need expert guidance to sort through your policies or need advice on what insurance your company needs, let us know!