Featured / Insurance Protection

Why Your Organization Needs to Consider Directors and Officers Liability Insurance

In today’s litigious business world, a company’s insurance portfolio is more than likely vast and includes multiple coverages. While sometimes overlooked, one insurance policy that should be seriously considered is Directors and Officers (D&O) Liability insurance.

D&O liability insurance is coverage that protects the personal assets of directors and officers if they are sued as a result of decisions they make while serving as a director or officer of a business or organization. It can also protect the organization itself if named in a lawsuit.

Examples of the types of claims that can trigger D&O liability insurance include mismanagement of employee benefit plans, financial misstatements, fiduciary dereliction resulting in damages or losses to creditors, broken non-compete agreements, misrepresentation to lenders or investors, along with misappropriations of trade secrets and patent infringement.

Any business with a corporate board should consider purchasing D&O insurance whether it is a publicly traded company or privately owned. This is equally important for non-profit organizations. Your company does not have to record millions of dollars in revenues for the directors and officers to be sued over their management of company business. Many of these claims or suits come from shareholders, but there are other sources such as vendors, customers, employees or regulators.

Below are a few examples to illustrate the importance of D&O Liability insurance:

In a “failure to supply business” lawsuit, a retailer advised one of its suppliers to increase inventory because it expected business to increase by a large margin. The retailer’s business did grow significantly, but it decided to move to another supplier. The original supplier sued the retailer, alleging that it relied on the retailer’s promise of more business and thus suffered damages when that business did not come through. D&O Liability insurance paid $500,000 to settle this claim.*

In another scenario, a company recruited a top sales executive employed by a competing company. The competitor sued the company, alleging it had interfered with the competitor’s contractual relationship with its employee. Defense expenses were in excess of $250,000 and the competitor was awarded damages of $600,000.*

In a final scenario, the vice president of a manufacturer determined that a new product line presented a very large sales potential. Instead of presenting his company with the opportunity, he shared it with his brother, who formed a new company to manufacture it. A shareholder sued the vice president, alleging that he wrongfully took advantage of an opportunity belonging to the corporation. The lawsuit was settled for $2,500,000.*

As noted in these examples, Directors and Officers Liability insurance will not only protect the insured for damages of a suit, but will normally include the legal defense fees which can be substantial.

Companies need to evaluate their exposure for this type of risk, but as the business world becomes even more complex, that can be difficult. An experienced business insurance consulting team, like Univest Insurance, can identify which strategies are best for your company and create a roadmap to implement them successfully. To discuss how we can help determine the best approach, please contact us at 800-220-3077 or insurance@univest.net.

*Travelers Insurance Directors and Officers claims scenarios

 

Insurance products offered through Univest Insurance, Inc. are obligations of the issuing insurance companies, not obligations or deposits of or guaranteed by any bank and are not insured by the FDIC or any other agency of the United States.