What Directors and Officers Insurance Is
Directors and Officers insurance — D&O insurance in practice — is a form of liability insurance through which a company protects the members of its governing bodies: directors, executives and other officers, against the risk that legal liability may arise against them. Under Article 3 of the Law of Georgia on Insurance, insurance is a relationship for the protection of the personal and property interests of natural and legal persons upon the occurrence of a defined circumstance — an insured event — at the expense of monetary funds formed from insurance contributions, that is, insurance premiums, paid by those persons, and of other sources permitted by the legislation.
The same article defines insurance activity as the activity of the insurer connected with the conclusion and performance of contracts of insurance and reinsurance. A D&O policy is issued precisely within that activity: the insurer and the policyholder — usually the company — conclude a contract under which the insured interest is protected upon the occurrence of the insured event. For a company whose directors take decisions daily that may later be challenged, this mechanism converts an unpredictable liability risk into a managed, contractual one.