A common misconception is that Directors and Officer Liability Insurance Policy and Errors & Omissions Insurance cover the same thing. However, this is not true, and both insurance policies have completely different coverages. It is crucial to understand the difference between Directors and Officers Liability Insurance Policy and Errors and Omissions Insurance Policy.
What is a Directors and Officers Liability Insurance Policy?
A Directors and Officers Liability Insurance Policy is a type of insurance policy which reimburses the Insured for any wrongful act committed by Directors and Officers during the Policy Period. A Directors and Officers Liability Insurance Policy is also known as D&O Liability Insurance Policy or Management Liability Insurance Policy.
A Wrongful Act in a D&O Insurance Policy is defined as follows:
“Wrongful Act” means any act or omission, including but not limited to any error, misstatement, misleading statement, neglect, libel, slander, breach of trust, breach of warranty of authority or breach of duty committed, by an Insured Person, individually or otherwise, in his Insured Capacity, or any matter claimed against such Insured Person solely by reason of his serving in such Insured Capacity.
What is an Errors and Omissions Insurance Policy?
An Errors and Omissions Insurance Liability Insurance Policy is a type of Insurance Policy which covers the Insured party for any type of loss arising from the Insured Party’s Professional Services. An Errors & Omissions Insurance Policy is also known as Professional Indemnity Insurance Policy.
The typical Insuring Agreement of an Errors & Omissions Insurance Policy reads as follows:
The Insurance Company agrees to pay Loss for which Insured becomes obligated to pay because of liability imposed by law or assumed in an Insured Contract, by reason of any Financial Injury arising out of the failure
->of Insured Product to perform the function or to serve the purpose intended, due to defect, deficiency, inadequacy or dangerous condition in Insured product; or
->to perform Insured’s Service, in accordance with the terms and conditions of a contract or agreement;
A Wrongful Act in an Errors & Omissions Insurance Policy is defined as follows:
“Wrongful Act” means any error, unintentional omission or negligent act including all related wrongful acts and all series of continuous, repeated or related wrongful acts. As you can see, the definition of a Wrongful Act in an Errors & Omissions Insurance Policy is completely different from the definition of a Wrongful Act in a Directors and Officers Liability Insurance Policy.
What is the Difference between Directors and Officers Liability Insurance Policy vs Errors & Omissions Insurance Policy?
The first difference between the Directors and Officers Liability Insurance Policy in India and Errors & Omissions Insurance Policy starts with the Insuring Agreement itself. As you can see, the Insuring Agreement (Coverages) and the Trigger for a Claim in a D&O Insurance Policy are completely different from the Insuring Agreement and the Trigger for a Claim in an E&O Insurance Policy.
In short, a D&O Liability Insurance Policy covers the Insured for a wrongful act committed by the Insured in their managerial or supervisory capacity while an E&O Insurance Policy focuses on protecting the Insured against allegations of inadequate or negligent professional services.