Many business owners, presidents, CEO’s and COO’s believe their General Liability insurance will cover them.  The General Liability will not cover all of the legal matters brought against a privately held company.   Some belief that if a corporation dissolves they are no longer liable and this is not that case; the Directors and Officers personal assets could be at risk.

This is where having a Directors and Officers Insurance Policy is vital to protect both the individual and the company which offers tremendous value at a reasonable cost.

If you own a private company, you have worked very hard to build your business and secure your family’s future.  It has been reported that the cost of defending litigation can range from $100,000 to $2,000,000; not many businesses can afford that kind of expense.

Some of the common allegations include: 

• Failure to perform appropriate due diligence when making an acquisition
• Misrepresentations or errors regarding the financial health of the organization to a customer or bank
• Misstatements regarding potential future performance of the company to investors
• Careless management strategy that causes bankruptcy
• Breach of duties under applicable security or other statutory laws
• Conflicts of interest when considering personal motives vs. the interest of the shareholders

Examples:

The estate of a recently passed director sued the other directors for recent company poor performance; the claim settled for $ 750,000.

A company recruited a top sales person from a competitor, who had an employment contract, and the competitor sued for damages after losing its top producer; costs were $ 250,000 and case was settled for $ 560,000

Why purchase a Directors and Office Liability Policy:

Since a director or officer can sometimes be held responsible for acts of the company, most directors and offers want to be covered rather than risk their personal assets.

When a company has a claim the expenses can mount very quickly.  Frivolous suites can be very expensive as well.  The cost of insurance to protect private a company against a Director or Officer is relatively low.

What does a D&O policy cover?  (Defense expenses and financial damages or settlements)

Criminal

Administrative

Civil

Regulatory

Errors

Omissions

Misstatements

Neglect

Breach of duty

What does a D&O policy NOT cover?

Wages

Fines

Taxes

Penalties

Multiplied damages

What are the coverage limits available?

From $ 500,000 to $ 1,000,000 per claim and annual total limit, with a $ 5,000 deductible per claim.

A Directors & Officers Liability Insurance can usually include Employment Practices Liability and sometimes Fiduciary Liability.   Do not confuse this with Errors and Omissions Liability.  The two are not synonymous.  Generally is it a good idea to carry both Directors and Officers Liability Insurance and Errors and Omissions Liability Insurance.

Employment practices suites constitute the single largest area of claim activity under D&O policies.  Over 50% of D&O claims are employment practices claims.