Alabama Property and Casualty Practice Exam

Directors and officers (D&O) insurance is specifically designed to protect individuals in leadership positions within a corporation, such as directors and officers, from personal losses resulting from legal actions taken against them for alleged wrongful acts while performing their corporate duties. This type of insurance covers legal fees, settlements, and other costs that may arise from lawsuits related to the decisions and actions taken in their official capacity.

For example, if a shareholder sues a company’s board of directors over decisions that allegedly harmed the company’s stock price, D&O insurance can help cover the legal defense costs and any resulting settlements or judgments. This coverage is crucial for attracting and retaining qualified individuals willing to serve in leadership roles, as it provides them with a safety net against personal financial liability that may arise from their corporate governance activities.

The other options focus on different aspects of insurance coverage that do not directly pertain to the specific protections afforded by D&O insurance. This clarity in the purpose and coverage offered by directors and officers insurance is key to understanding its significance for organizations.