Every business, whether it employs five people or five thousand, faces risks that can threaten the financial stability of the company and the personal assets of its leadership. While many owners understand the need for property or general liability insurance, far fewer appreciate the protections available through professional liability or errors & omissions (E&O), directors and officers (D&O), employment practices liability (EPLI), and crime insurance. These policies, collectively known as ‘executive protection coverage,’ guard against some of the most financially serious exposures a business can face. And while the world of executive protection insurance may not seem glamorous, observes Gary Kirshenbaum of Alera Group, understanding its advantages can prevent disasters from crippling a business and its leadership.
Professional Liability (E&O) Insurance
Professional liability insurance, often referred to as ‘errors and omissions’ (E&O), is designed to protect businesses and individuals whose work involves specialized expertise, such as those in the legal, accounting, consulting, engineering, media or technical services professions
Unlike general liability insurance, which responds to accidents that cause bodily injury or property damage, E&O insurance addresses the quality and adequacy of professional services provided to clients. As Lee Burke of Burke, Bogart & Brownell explains, professional liability concerns “the failure to meet or adhere to professional standards,” including both what a professional did wrong and what they failed to do.
Professional liability policies cover negligent errors while claims involving intentional acts and fraud are generally excluded, though some policies include clauses allowing defense coverage until wrongdoing is proven. These nuances are important when an investigation is ongoing or allegations are contested.
Bradley Dlatt of Perkins Coie points out that policies differ widely in how they define a covered ‘professional service,’ and that seemingly small variations can dramatically affect whether a claim is covered. Because of this, business owners should carefully negotiate policy language and ensure their professional services are accurately and comprehensively described.
Claims-Made Coverage
One of the most common surprises for business owners is learning that most E&O policies are written on a claims-made basis. Jonathan Mayotte of Thornton Powell explains that under a claims-made policy, “coverage only applies if the claim is both made and reported while the policy is active.” This differs from an occurrence policy, where coverage is determined by when the incident happened, regardless of when it was reported, even years later
Because of this structure, owners must be aware of two key features:
• The retroactive date, which determines how far back coverage applies, and
• The extended reporting period (‘tail coverage’), which may be needed when selling or closing a business.
Missing a reporting deadline, even accidentally, can result in a complete denial of coverage, making awareness and prompt action essential.
Claim Reporting Obligations
Reporting obligations under E&O policies are strict, and failing to report a potential issue can jeopardize coverage. Claim reporting is an essential obligation of the policyholder, and ignoring a problematic situation because it seems minor can backfire. Many policies require reporting not just actual claims but also the circumstances that could lead to one.
A ‘claim’ is often defined broadly and may include a demand letter, an email alleging wrongdoing, or even a verbal threat. If a lawsuit is filed years later, insurers may deny coverage on the grounds that the initial event should have been reported earlier.
Directors and Officers (D&O) Liability Insurance
Directors and Officers (D&O) insurance protects the company and its’ decision-makers, directors, officers, and sometimes key managers, from claims arising out of their business judgment. D&O coverage applies when a customer, investor, partner, or regulator alleges that the company or its leadership made a ‘judgment-based mistake.’
It is important to note that titles alone do not dictate coverage. D&O policies generally focus on individuals who actually participate in decision-making. Endorsements can expand coverage to include committee members or other key personnel, and businesses should review these definitions carefully.
Many small and mid-sized businesses assume D&O insurance is only for public companies; however, private businesses, family enterprises, and nonprofits all face exposures that can lead to claims, making D&O coverage relevant to all.
D&O coverage is typically divided into three components:
- Side A protects individual directors and officers when the company cannot indemnify them.
- Side B reimburses the company when it chooses to indemnify leadership.
- Side C protects the company itself, generally for securities-related claims (for public companies) or broader management claims (for private ones).
Employment Practices Liability Insurance (EPLI)
EPLI coverage addresses claims arising from the employer-employee relationship. These claims can include allegations of:
• Discrimination
• Harassment
• Wrongful termination
• Retaliation
• Privacy violations
• Failure to promote
• Defamation or negligent evaluation
• Claims brought by job applicants
However, EPLI is not a catch-all employment policy. Exclusions often include:
• Wage and hour violations
• Workers’ compensation claims
• ERISA violations
• Punitive damages in some jurisdictions
• Claims related to bodily injury, pollution, or property damage
It’s important to understand that EPLI claims do not require an employer to have done anything wrong; allegations alone can trigger expensive investigations and defense costs.
Crime and Employee Dishonesty Coverage
Crime coverage protects against financial loss caused by theft, fraud, or dishonesty, often committed by insiders, while employee dishonesty insurance, also known as ‘fidelity coverage,’ insures against theft of money, securities, inventory, or other assets by employees.
Notable exceptions to coverage include those related to ‘social engineering,’ the manipulation of employees into sending money or sensitive information, and the theft of trade secrets and intellectual property. Owners should understand these limitations and consider additional protections, including contractual safeguards and cybersecurity solutions.
Practical Tips for Business Owners
Executive protection coverage is a critical tool for any organization seeking to protect its leadership, reputation, and financial stability. Understanding how the various coverage plans and options work, and ensuring they are properly coordinated, can prevent devastating losses. Relying on multiple brokers or agents increases the risk of gaps, inconsistent advice, or claims that fall through the cracks. A single experienced broker can ensure policies complement, rather than conflict with, one another.
To reduce risk and strengthen protection, businesses should:
• Know the difference between occurrence and claims-made policies.
• Promptly report claims and potential claims.
• Review definitions of insured persons and professional services.
• Ensure employment practices are compliant with relevant laws.
• Regularly update policies during growth, restructuring, or leadership changes.
To learn more about this topic, view Executive Protection. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about risk management and risk analysis.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
