What's a reasonable level of D&O coverage?
Selecting the appropriate limit of any kind of liability insurance is a bit of a crapshoot. There are a variety of factors that should be taken into account for D&O including:
- Employee Count
- Do you want to incorporate coverage form Employment Practices (the single biggest source of claims against D's&O's for private companies)
- Are you entering into sophisticated transactions that could result in litigation (such as M&A)?
- What is your company's financial condition?
- Is your company public or private?
- Does your Board or VC have a limit requirement?
- How does D&O coverage fit into your overall risk profile - are you spending insurance dollars wisely with a higher limit or would you be better off with a lower limit on D&O, with the additional dollars go toward another coverage like E&O?
Assuming we are talking about a private startup company, generally speaking, startups will carry $1MIL - $3MIL. Keep in mind that for most policies defense costs will deplete the limit of liability, so make sure your limit is high enough to cover defense AND settlements. One other point - ask your broker for benchmarking info with data from peer companies. This may give you some additional insight and guidance. Now go get 'em, slugger!
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