A company depends on its directors, executives and managers to lead the company to success. But serving in those roles places business leaders at risk and exposes them to allegations of making improper management decisions or of breaching their fiduciary responsibilities. The financial impact of such allegations can be significant, both to the company and to the individual directors and officers.
Directors and Officers (D & O) insurance is “errors or omissions” insurance for executives and the Boards of Directors. Coverage may be written to cover the entity as well. Virtually every organization (and its directors and officer) are vulnerable to D & O claims including:
- Private companies
- Public companies
- Non-profit organizations
Why organizations need D & O Insurance
- Leaders of private and public companies and non-profits can be held personally liable for the decisions they make. Without D & O insurance, their personal assets could be at risk.
- D & O insurance is often required to attract and retain highly qualified directors and executives.
- D & O claims are becoming more frequent, particularly those related to regulatory actions.
- Claims may be initiated by a wide range of stakeholders including shareholders, customers, employees, lenders, vendors, competitors and regulatory agencies.
- D & O insurance, subject to the limit of liability, typically includes defense costs for D & O claims. Defending a D & O claim often costs $100,000 or more.
- A change of control of a company increases the likelihood of a D & O claim.
- D & O insurance, which can cover financial losses, helps fill gaps not covered by General Liability and Umbrella insurance.
Examples of conduct that can lead to D & O Claims:
- Breach of conduct
- Wasting assets
- Extending credit where not reasonable
- Mixing business and personal assets
- Failure to prevent embezzlement
- Violation of statutes
- Violation of company articles or bylaws
- Failure to disclose conflicts of interest
- Errors in judgement
- Deceptive business practices
- Preparation of false or misleading reports
- Failure to disclose material facts
- Failure to properly supervise employees
Common D & O Exclusions:
- Fraudulent, criminal or intentional non-compliant acts, but innocent parties remain covered if they are co-defendants
- Illegal remuneration or personal gain
- Claims covered by other insurance policies
Running a business in today’s fast-paced and complex environment is challenging. Even highly-competent decisions makers are at risk of having their decisions questioned by a wide range of third parties. When that happens managers’, officers’ and directors’ personal assets may be at risk.
Hortica offers Directors and Officers Liability to cover these exposures. Once the realm of public companies, more and more private companies are making Directors and Officers Liability a part of their risk management program.