One form of Professional Liability/Errors & Omissions Insurance is Directors & Officers Liability (D.&O.). This insurance is one of the least understood coverages in the spectrum of insurance protection for the commercial enterprise, especially when the C corporation is perhaps the most common of legal entities conducting business today.

The framework with which the liability exposures lies is a very old and established set of laws governing the Standard of Care that an individual must exercise when acting in the capacity of a director and/or officer. The set of responsibilities can be summed as:

I. Duty to Care: the same care as a reasonably prudent person would use in similar circumstances, always acting in good faith and in the best interests of the corporation. This duty to care is a variable standard dependant upon the background, experience and expertise of each director/officer; the greater one's capacity to serve, the greater the expectation of the courts for that service.

II. Duty to Loyalty: directors/officers are to refrain from engaging in any personal activity which could injure or take advantage of the organization. There can be NO conflict between one's duty and their self-interest.

III. Duty of Obedience: any director/officer acting outside their authority or in conflict with the Charter & by-laws of the organization is exposing themselves and their entire personal assets to lawsuit! Remember, these duties apply to not only shareholders but also to third party plaintiffs such as customers and governmental agencies!

Along with these Common Law precedents, there are many Federal and State Laws dictating the rules and performance of each and all persons acting in a similar capacity. Potential claimants, therefore, include: 1) the corporation itself; 2) shareholders of record; 3) employees; 4) third party claimants, including competitors, customers, creditors and any one else who is affected by your decisions as a director/officer!

Other than self-insurance, the only form of protection is Directors & Officers Insurance. However, depending on your particular situation, there may be only a very limited number of insurance companies offering the proper protection you need. Unlike other forms of standard casualty insurance, insurers offering this coverage all use non-standard forms. This means that careful consideration must be exercised when evaluating which form is right for you! Factors that need professional scrutiny include: 1) expertise of insurer; 2) negotiation of appropriate coverage languages; 3) financial analysis for proper limit of insurance; 4) insuring that the coverage selected dovetails with the by-laws of the parent organization.