Directors and officers can be held personally liable for misuse of funds, misappropriation of funds, knowledge of illegal or improper acts, making improper loans, fraudulent acts, and transactions or decisions which are not authorized by the bylaws of the corporation.
Regardless of whether an action against a director or officer is justified, the cost of defending that action can be great. Directors’ and Officers’ Liability Insurance provides coverage for these defense costs as well as other liabilities which may arise from directors and officers performing their duties.
A general liability policy for a business will not typically extend to provide such coverage as it tends to be limited to property damage or bodily injury caused to others.
Typical sources of claims include shareholders, shareholder-derivative actions, employees, regulators and competitors (for anti-trust or unfair trade practice allegations).