Directors & Officers (also known as “D&O”) is better described as Business Liability. This policy provides coverage for Business-related suits brought against Companies, and Directors and Officers, which do not fall under the General Liability or Professional Liability policies.
Wrongful Act Defined: any actual or alleged error, omission, misleading statement, misstatement, neglect, breach of duty or act allegedly committed or attempted.
Insurable Costs Include:
• Legal Fees (for both the Board Members and the Company)
• Damages (including some limited Punitive Damages )
• Settlements (which include the plaintiff’s attorney expenses)
Insurable Events Include:
Suits from Competitors
• Anti-Competitive Business Practices
• Intellectual Property theft
• Tortuous Interference of a Business Relationship
• Employee Pirating
Suits from Vendors/Creditors/Customers
• Fraud or abuse
• Financial misrepresentation
• Failure to disclose material information
• Misuse of funds
• Waste or neglect of assets
• Failure to supervise or manage the organization
Suits from Shareholders (Major Shareholder v. Minor Shareholder)
• Buy-out of Minority SH by Majority SH (Major SH bought Minors out then went Public)
• Freeze-out Merger (Major SH arranges a merger which affects Minor SH)
• Sale of Company Assets to entities controlled by Major SH
• Failure of Principal to select adequate successor
Limit of Liability
Capacity has increased with limits available from $1,000,000 to $20,000,000.
Top Reasons why Private Companies should consider D&O:
Does your organization have employees?
No firm is immune from suits brought by current or former employees. Employment Practices Liability covers an Entity, its executives, and employees from Claims brought by both employees and customers (Third Party Liability). EPL is part of D & O policy.
Does your operation interact with the Public?
If your organization provides services to the public sector, your employees, independent contractors, and your firm is exposed to Discrimination and or Harassment Claims brought by customers (aka: Third Parties). Employment Practices policies which include Third Party Liability coverage is written specifically to respond to such Claims.
Does your organization issue financial statements?
Directors and Officers are liable for errors on a firm’s financial statements, which can lead to Claims brought by creditors, vendors, and other organizations that rely on the information provided in such statements.
Does your organization seek/use outside financing?
Directors and Officers can be held liable under federal and state securities laws regarding any sale of securities. Liability can arise from failure to fully disclose all material information about the organization at the time of the securities transaction.
Does your organization enter into contracts?
Disagreements between parties to a contract can lead to suits being brought against a Private Company’s Principals, who most often are the ones arranging, negotiating, and signing the contracts. Directors and Officers policies can provide defense costs for allegations of damages arising from a breach of contract.
Does your organization contemplate an acquisition or merger? What about Succession?
Major corporate transactions such as a sale or acquisition of a company are commonly second-guessed by others (i.e. “Did we pay too much?” or “Did we sell for too little?”). Even if a merger does not happen, Directors and Officers are exposed to suits from a variety of parties impacted by such transactions (or non-transactions). As more Business Owners face retirement, the issue of succession becomes an issue that will follow a former Owner’s decision into the future.
Does your organization have a Health Plan or a 401K Retirement Plan?
Such Programs are more common in this competitive Employer Market, and as more companies implement these new and complex programs, the greater the exposure to error is. Directors and Officers are not insured for such Claims in the D&O policy. Mistakes in processing these programs (i.e. failing to add a newborn to a Medical Plan) can only be covered under a Fiduciary Liability Policy.
At HCP we have been placing D and O insurance since our beginning and we adept to all forms of Directors and Officers Insurance. The above is a general discussion of D & O and not a policy analysis. Consult your policy for all questions regarding your coverage. We are not a law firm, but a D & O Insurance Broker, located in Orange County CA., whose D and O division is Rubicon Insurance.
