Companies purchase directors and officers (D&O) insurance to shield management from personal liability related to the business and to attract talent.
D&O policies often cover defense costs and fund settlements. Similarly, D&O coverage may provide an avenue of recovery for creditors when the company faces financial distress, including a bankruptcy filing.
Potential claims against D&Os may arise from general mismanagement of the business, breaches of fiduciary duties, as well as from intentional harmful acts. It's quite common for third parties to question or second guess management decisions, and such decisions are subject to higher scrutiny once the company files for bankruptcy protection.
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