Georgia Adjuster Practice Test

A typical directors and officers liability policy does not cover which of the following?

1. Legal expenses for officers and directors

2. Liabilities of the entity itself

3. Damages paid in legal proceedings

4. Reimbursements allowed by bylaws

The correct answer is: Liabilities of the entity itself

The correct response indicates that a typical directors and officers (D&O) liability policy does not provide coverage for the liabilities of the entity itself. This distinction is crucial because D&O policies are specifically designed to protect individual directors and officers from personal losses resulting from claims made against them while serving in their capacities as leaders of the organization. The liabilities of the entity, such as the corporation's obligations or exposures for wrongful acts, are typically covered under general liability insurance or similar commercial policies and not the D&O policy itself. These coverages are structured specifically to protect individual personal assets rather than the entity's assets. This is fundamental in ensuring that the D&O policy focus remains on the individuals rather than on the corporation as a whole, maintaining a clear line of coverage based on the intent of the D&O policies. In contrast, the other items listed are typically included within the scope of a D&O policy. Legal expenses for officers and directors, damages paid in legal proceedings, and reimbursements allowed by bylaws are all aspects that the policy aims to address to protect the interests of individual board members and executives facing litigation as a result of their roles within the organization.