Directors and officers are held in prior position not only for their connection with your business but also for their right to sue the company in the event of failure of the company’s performance. You need to provide directors and officers insurance in the event of any claim by the directors and officers against the performance of the company. So, Directors and officers have to exercise due diligence in overseeing the business activities that they serve.
Many people often get confused between directors and liability insurance with the errors and omissions insurance. The former pays the compensation for the performance or duties of the management, but the latter pays the compensation for the performance failure or the negligence that resulted in your business products or services.
When you assemble board of directors and in order to get funds to the company by the investors especially venture capitalists, you need directors and officers liability insurance as a part of evidence or surety that pays compensation for them in the event of your company failure. Because these investors and members of your board of directors may not be willing to take risk by providing personal assets (money) to your company, no matter how sincere their belief in your company.
Since a director or an officer can be personally responsible for the performance or acts of the company, most of the directors and officers will demand to be protected rather than putting their personal assets at stake. So, get an appropriate cover to your board of directors and reduce the risk associated with them.