Think of it as professional liability insurance for directors and officers of a corporation. Like anyone, directors and officers can make mistakes of judgment, but when they make mistakes based on negligence, recklessness, or bad faith, they may be held liable for their acts or omissions.

Directors & officers policies typically have two parts. Part A provides direct reimbursement for third-party claims brought against directors and officers. Part B reimburses the corporation if it is required to indemnify directors or officers according to state law, its corporate charter, or by-laws. These policies are claims-made, meaning they only provide coverage while they are in effect, unless otherwise modified, as when they include a retroactive date for claims occurring before the inception date.