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.
Fraud.
Misrepresentation of company assets.
Failure to comply with workplace laws.
Misuse of company funds.
Theft of intellectual property and poaching of competitor’s customers.
Illegal acts or illegal profits are generally not covered under D&O insurance.
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.
Fraud.
Misrepresentation of company assets.
Failure to comply with workplace laws.
Misuse of company funds.
Theft of intellectual property and poaching of competitor’s customers.
Illegal acts or illegal profits are generally not covered under D&O insurance.
It’s a common misconception that D&O claims are mostly a public company phenomenon. In fact, a recent Towers Watson survey showed that public, private, and non-profit companies all face D&O litigation risks.
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.
It’s a common misconception that D&O claims are mostly a public company phenomenon. In fact, a recent Towers Watson survey showed that public, private, and non-profit companies all face D&O litigation risks.
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.
Breach of fiduciary duty.
Read Scenario
Creditors of a company that was having some financial trouble and in need of capital, sued its directors and officers for failure to identify, evaluate, negotiate, and secure the sale of company assets in a timely manner, which resulted in the company defaulting on its outstanding loans.
Investors sued a company alleging that some of the company’s officers had personal connections to a third party contractor hired to re-tool the company’s assembly line and that they hired that contractor to further their personal interests, not the interests of the company. Other officers and directors were alleged to have either knowingly colluded with one another, or at least breached their duty of care in undertaking the project without properly investigating the qualifications of the contractor.
Misrepresentation.
Read Scenario
A company negotiated a large contract with a customer. The contract required the company to have certain financial and human resource assets in place to satisfy production and delivery requirements. The directors misrepresented the company’s revenues and capabilities and after being awarded the contract, the company was unable to meet the terms. The customer sued.
In another misrepresentation case, a retailer asked one of its suppliers to build up inventory because business was expected to increase significantly. The retailer’s business did increase, but it decided to use a different supplier. The original supplier sued the retailer alleging damages based on the retailer’s promise of more business and subsequent failure to provide that business.
Failure to comply with workplace laws.
Read Scenario
A female employee was terminated and then sued the directors and officers and the company for wrongful termination based on gender discrimination.
Theft of intellectual property.
Read Scenario
A vice president left his firm to start up his own company. His former employer sued him and his new firm alleging that he took with him certain corporate licenses to market proprietary software, creating unfair competition and trademark infringement.
Breach of fiduciary duty.
Read Scenario
Creditors of a company that was having some financial trouble and in need of capital, sued its directors and officers for failure to identify, evaluate, negotiate, and secure the sale of company assets in a timely manner, which resulted in the company defaulting on its outstanding loans.
Investors sued a company alleging that some of the company’s officers had personal connections to a third party contractor hired to re-tool the company’s assembly line and that they hired that contractor to further their personal interests, not the interests of the company. Other officers and directors were alleged to have either knowingly colluded with one another, or at least breached their duty of care in undertaking the project without properly investigating the qualifications of the contractor.
Failure to comply with workplace laws.
Read Scenario
A female employee was terminated and then sued the directors and officers and the company for wrongful termination based on gender discrimination.
Misrepresentation.
Read Scenario
A company negotiated a large contract with a customer. The contract required the company to have certain financial and human resource assets in place to satisfy production and delivery requirements. The directors misrepresented the company’s revenues and capabilities and after being awarded the contract, the company was unable to meet the terms. The customer sued.
In another misrepresentation case, a retailer asked one of its suppliers to build up inventory because business was expected to increase significantly. The retailer’s business did increase, but it decided to use a different supplier. The original supplier sued the retailer alleging damages based on the retailer’s promise of more business and subsequent failure to provide that business.
Theft of intellectual property.
Read Scenario
A vice president left his firm to start up his own company. His former employer sued him and his new firm alleging that he took with him certain corporate licenses to market proprietary software, creating unfair competition and trademark infringement.
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