The Initial Public Offering: D&O Liability Insurance
Directors and officers of companies face the possibility that — even if they diligently discharge their duties to their stockholders — their stockholders may still sue them. During the period leading up to an IPO, directors and officers may be particularly concerned about their personal liability because the chance that they will be sued by their stockholders substantially increases once the company’s shares are publicly traded. Recognizing that the risk of personal liability makes being a director or officer of a public company unattractive, most companies purchase director and officer liability insurance, or “D&O Insurance”, to protect their directors and officers. This insurance can in turn help companies recruit and retain good directors and officers.