Directors and officers can be held personally liable for decisions they make while serving on a company or organization’s board. Directors & Officers liability insurance protects these board members that could be held liable for the decisions they make while serving on the board. A D&O policy can help cover the costs of legal defense, damages and/or settlements if a company is sued for alleged wrongful acts. Having a D&O policy in place can also help attract and retain qualified executives and board members.
Directors and officers could be sued for a variety of reasons related to their role on a board including any of the following:
- Breach of fiduciary duty resulting in financial losses or even bankruptcy
- Misuse of company funds
- Misrepresentation of company assets
- Failure to comply with workplace laws
- Fraud
What is Directors and Officers Insurance?
Directors and Officers insurance, commonly known as D&O insurance, provides liability coverage for company leaders, protecting them against claims stemming from their decisions and actions while performing their professional responsibilities. In today’s increasingly complex legal landscape, businesses face higher risks of lawsuits and liabilities, often triggered by “adverse news events.” Companies typically invest in D&O insurance to mitigate the rising costs of litigation and safeguard their leadership. Without a robust D&O insurance program, attracting top managerial talent becomes challenging due to the potential risks involved.
Why Do I Need Directors and Officers Insurance?
When a claim is made against directors and officers, the insurance provider steps in to manage the lawsuit, facilitate settlement negotiations, and cover associated expenses. This support can result in significant time and cost savings for the organization. Let’s explore some common types of D&O claims and the circumstances that typically give rise to them:
Regulatory Issues
Businesses face the risk of fines and penalties from governmental regulatory bodies if they fail to comply with legal requirements. Directors and officers may be subject to claims from these agencies related to consumer protection, workplace safety, taxation, environmental regulations, securities laws, or corporate governance.
If these bodies identify wrongful actions by company leadership, they can initiate legal proceedings against both the organization and its executives.
Competition
The competitive nature of today’s business landscape, particularly in high-growth startup sectors, drives companies to seek every possible advantage. However, this can sometimes result in practices that cross legal boundaries. Companies and their executives may face lawsuits for actions such as collusion, intellectual property violations, misappropriation of trade secrets, or other anti-competitive or unlawful activities.
