Does a directors and officers liability policy provide coverage for errors in preparing financial statements?

A directors and officers liability policy is designed to protect individuals in leadership positions within a company from claims arising due to their management decisions. This type of policy typically covers a range of liabilities, including those related to errors or omissions in financial statements. Directors and officers may face lawsuits from shareholders or other stakeholders asserting that they acted negligently or failed to fulfill their fiduciary duties, particularly when it comes to financial disclosures.

When preparing financial statements, directors and officers are expected to exercise a reasonable degree of care and diligence. If errors occur that lead to financial loss for shareholders or other parties, the directors and officers could be held liable. The policy is there to help defend them against such claims and potentially pay damages, if necessary.

In this context, the correct answer reflects that a directors and officers liability policy does, indeed, provide coverage for errors in preparing financial statements, thereby safeguarding the insured individuals against financial risks associated with their decision-making processes. Other options may imply limitations or exclusions that aren't typically reflective of the broad coverage goals of this type of policy, as it aims to protect against a range of management-related liabilities.