What directors and officers insurance do law firm partners need?

Directors and officers insurance for law firms covers claims against partners and firm leadership arising from their management and governance decisions rather than their legal practice. While malpractice insurance covers claims related to the delivery of legal services, D&O covers allegations such as mismanagement of firm finances, breach of fiduciary duty to other partners, wrongful expulsion of a partner, misrepresentation in firm financial reporting, and improper handling of firm dissolution or merger.

These claims typically come from within the firm rather than from clients. A partner who is involuntarily separated from the firm may allege that the managing partners breached their fiduciary duties or violated the partnership agreement. A retired partner may claim that the firm misrepresented the value of their interest or failed to properly account for their capital contribution. These internal disputes are not covered by malpractice insurance and can be financially devastating without D&O protection.

D&O coverage is particularly important for firms organized as professional corporations or LLCs where managing partners function as directors or managers with formal governance responsibilities. The policy typically covers defense costs, settlements, and judgments arising from claims against the firm's leaders in their management capacity. Some policies also extend to cover the firm entity itself for securities-type claims if the firm has issued equity interests.

When evaluating D&O coverage, look for policies that cover wrongful acts in the management of the firm's business operations, employment-related claims that fall outside EPLI coverage, regulatory investigations into the firm's business practices, and claims by departing partners. The cost of D&O coverage for a small law firm is typically $2,000 to $8,000 annually for $1 million in coverage, making it a relatively affordable protection against potentially catastrophic internal disputes.