Directors and officers (D&O) insurance is often purchased for or by individuals that sit on a board of directors and could face exposure to lawsuits. Due to the nature of the duties they perform, directors and officers can be personally sued by any number of people they come in contact with, or can affect with their decisions, during the performance of their duties. This includes shareholders, creditors, employees, suppliers, customers, competitors or regulators, hence the need for d&o cover.
Shareholders can bring about suits of this nature. They might sue for insider trading, just for one example. Creditors may wish to file a claim over allegations of misrepresenting the financial health of the company. Even competitors, citing anti-trust or unfair trade practices, and having determined that a violation was made, may seek retribution in the court system.
In short, a suit can be due to anything construed as a “wrongful act”, and includes errors and omissions, as well as misstatements, misleading statements, neglect or breach of duty. Beneficiaries are commonly the directors, officers or the corporation.
Fear of lawsuits can affect their ability to govern
Being personally involved in a lawsuit can have a crippling effect on individuals asked to serve. The risk of being involved in a lawsuit may cause qualified individuals to decide against taking a position on a board, fearful of such an exposure. This could even motivate existing directors and officers to act with excessive caution in pursuing a corporation’s interests, which also doesn’t bode well for an organization.
Ensuring directors and officers against personal liability for what may be their own wrongful acts helps to address these types of fears and concerns. Some policies may contain a range of exclusions for situations and types of loss that insurers consider unfavorable and therefore do not wish to cover. Some are commonplace, such as in the case where there was a dispute prior to the policy’s inception. Some exceptions exist in all policies, while others may only appear occasionally.
Don’t let these concerns make a difficult job even harder. Protect yourself, or your directors and officers, with an insurance policy for d&o cover. Speak to a qualified agent today.