The volume of corporate litigation is an ongoing concern. In recent years, there has also been a global trend to hold individuals accountable for their actions. For stockholders, employees, customers and clients who feel they have been wronged, finding the guilty party and holding them accountable can often be accomplished by filing a lawsuit.
Given the increase in litigation, now is a good time to either purchase Directors & Officers (D&O) liability insurance, or review existing coverage. You want to ensure that it meets the needs of your company and its directors and officers.
D&O insurance provides financial protection for directors and officers in the event that they are sued as a result of actions they have taken for the organization. Procuring D&O insurance provides directors and officers with the assurance that they can perform their duties without incurring personal liability. However, it does not provide members of the board and company executives with license to commit fraud or engage in reckless behavior.
Note: D&O insurance should not to be confused with Errors & Omissions insurance, or E&O insurance, which protects professionals and professional organizations from financial loss from negligence.
D&O insurance typically contains four areas of coverage:
D&O insurance not only helps insure a company against certain types of risk, it can also serve as a recruitment and retention tool. Given the number of companies that are purchasing D&O insurance, not doing so may place your company at a competitive disadvantage when attempting to entice a director candidate to join the board. Since directors can be found personally liable for a company's wrongdoing, many directors will not be comfortable placing their personal assets at risk. Providing them with a sense of security can help attract high-caliber candidates with the appropriate skills and experience to sit on your company's board.
D&O deductibles, policy limits and terms and conditions vary depending in part on the following specifics:
Periodically, it is important to conduct a review of your company's D&O policy to ensure that it meets the needs of the company. The following developments may justify a review of existing D&O policies:
Finally, before your company purchases a policy, consider engaging a professional with previous experience to help choose the best D&O policy for your needs. Ideally, this professional should have a detailed understanding of your operations in order to assess your company's risk profile. D&O coverage can be complex and this article only provides a general overview.
Get in touch today and find out how we can help you meet your objectives.