Protecting Your Company with Directors & Officers Liability Insurance

In today's litigious business environment, companies face a myriad of risks, including potential lawsuits against their directors and officers.

These individuals, who are responsible for making critical decisions on behalf of the company, can be held personally liable for their actions or inactions.

This is where Directors and Officers (D&O) Liability Insurance comes into play, providing essential protection for both the company and its leadership.

“Directors and Officers insurance offers protection to a company’s directors and officers individually against lawsuits related to management decisions,” explains Kyle Dean, President & CEO of Dean & Draper. “Lawsuits against directors or officers have increased over time and can potentially be so costly a business may shut down. Helping shield your corporate management can help protect your entire company.”

What is D&O Liability Insurance?

D&O Liability Insurance is a type of coverage that protects the personal assets of directors and officers in the event they are sued for alleged wrongful acts while serving in their corporate roles.

“While business insurance policies by definition provide coverage for the business itself, individual company officers may still be personally exposed to financial losses resulting from a lawsuit. To protect your company’s leadership, you may want to consider purchasing directors and officers (D&O) liability insurance,” says the Insurance Information Institute (iii).

The policy also extends coverage to the company itself, helping to cover legal fees and settlements associated with such lawsuits.

D&O Liability Insurance typically covers a wide range of potential claims, including:

• Breach of fiduciary duty.
• Misrepresentation or omission of material facts.
• Negligence in decision-making.
• Mismanagement of company funds.
• Conflicts of interest.
• Regulatory investigations and enforcement actions.
• Suits brought by shareholders over stock or company performance.
• Decisions made that exceeded the authority granted to the director or officer.
• HR issues and employment practices.
• Environmental claims.
• Cyber liability.

The iii says the following is not included in D&O policies: Fraud.

• Personal profiting.
• Accounting of profits, and other illegal compensation exclusions.
• Pending and prior litigation.
• Prior (late) claim notice.
• Bodily injury/property damage.
• Insured versus insured claims.
• Employment Retirement Income Security Act (ERISA) lawsuits.

How D&O Coverage Works and Why You Need It!

The iii says this type of insurance can be written for for-profit businesses, privately held firms, not-for-profit organizations, and educational institutions.

“There are several elements—called “Sides”—to a D&O policy,” says the iii.

Those three sides, according to the iii, are:

Side A: Protects a corporation’s directors and officers when the company cannot indemnify the individuals.

Side B: Reimburses the organization when it indemnifies the individuals, thus protecting the company’s balance sheet.

Side C: Also known as “entity coverage,” this eliminates disputes of coverage allocation when both the directors and officers and the insured organization are named as co-defendants in a securities lawsuit.

Companies need to only look back about 25 years ago to such high-profile corporate scandals as Enron – where executives were accused of fraud and misrepresentation leading to the company’s collapse – and WorldCom – where directors were sued for failing to prevent fraud by the CEO and CFO– to understand why D&) liability insurance is needed.

How Dean & Draper Can Help Protect Your Business

Dean & Draper can help your business by finding your directors and officers a liability policy that protects them against:

• Claims of Financial Mishandling: D&O Liability Insurance protects against claims alleging that directors or officers mismanaged company funds, engaged in self-dealing, or made decisions that harmed the company's financial well-being. For example, if a shareholder sues the board for approving a merger that resulted in significant losses, D&O insurance would help cover the legal costs and potential settlements.
• Termination: Wrongful termination claims can be brought against directors and officers by employees who believe they were unjustly fired. D&O Liability Insurance can help protect against such claims, covering legal fees and any settlements or judgments. This coverage is particularly important given the high cost of defending against employment-related lawsuits.
• Alleged Discrimination: Directors and officers can face lawsuits alleging discrimination based on factors such as race, gender, age, or disability. These claims can be costly to defend and can result in significant settlements or judgments. D&O Liability Insurance helps protect the company and its leadership from the financial fallout of such claims, ensuring that the company can continue to operate while addressing the allegations.

“Directors and Officers Liability Insurance is a critical component of a company's risk management strategy,’ says Dean. “By protecting the personal assets of directors and officers and helping to cover the costs associated with lawsuits, D&O insurance provides peace of mind and financial stability in an increasingly complex and litigious business landscape.”

Companies of all sizes and across all industries should strongly consider obtaining this essential coverage to safeguard their leadership and ensure the long-term success of their organization.

Reach out to Dean & Draper today to find D&O liability insurance that fits your business’s needs.

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