It’s a common misconception that Directors & Officers (D&O) claims occur only in publicly traded companies. In fact, a recent Towers Watson survey showed that public, private, and non-profit companies all face D&O litigation risks. If you have a board of directors helping to run your company, then you and your directors are at risk of lawsuits from employees, customers, investors and many other interested parties.
Lawsuits are all too common these days. In a 2016 survey by Chubb, the average reported loss from a D&O lawsuit was $387,000 and the maximum reported loss was $17 million. Without sufficient insurance coverage, defending a lawsuit could be financially devastating to your company and your directors and officers.
Any business with a corporate board or advisory committee should consider investing in D&O insurance, including non-profit organizations. Your company does not have to post revenues in the tens of millions of dollars for your directors and officers to be personally sued over their management of company affairs. In fact, smaller businesses with fewer assets may need the protection just as much as large, deep-pocketed corporations.
Directors and officers (D&O) liability insurance protects the personal assets of corporate directors and officers, and their spouses, in the event they are personally sued by employees, vendors, competitors, investors, customers, or other parties, for actual or alleged wrongful acts in managing a company.
The insurance, which usually protects the company as well, covers legal fees, settlements, and other costs. D&O insurance is the financial backing for a standard indemnification provision, which holds officers harmless for losses due to their role in the company. Many officers and directors will want a company to provide both indemnification and D&O insurance.
Directors and officers are sued for a variety of reasons related to their company roles, including:
- Breach of fiduciary duty resulting in financial losses or bankruptcy
- Misrepresentation of company assets
- Misuse of company funds
- Fraud
- Failure to comply with workplace laws
- Theft of intellectual property and poaching of competitor’s customers
- Lack of corporate governance
Illegal acts or illegal profits are generally not covered under D&O insurance. Read on as Hartford Insurance looks at some common types of D&O risks and claims.
The Turner Agency, Inc. is a local Trusted Choice® independent insurance agency based in Greenville, South Carolina. Serving the Upstate of South Carolina and beyond since 1962, we offer a variety of personal and business coverage choices and can customize an insurance plan to meet your specialized needs for home, auto, business, or other insurance products. Contact The Turner Agency today.
The information in this article was obtained from various sources and is not all inclusive regarding the subject matter. This content is offered for educational purposes only. Including content from Hartford Insurance.
