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Do You Make Decisions for Your Company? Then You Have a D&O Liability

Broker Insight Report
If you remember only one thing today, it should be this: don’t assume that your organization doesn’t need Directors and Officers (D&O) Liability insurance just because you don’t have stockholders. Any organization that has business relationships with customers and third-party suppliers is open to a D&O lawsuit. Organizations that are subject to regulatory oversight or have competitors or lenders can also face D&O-related exposures. Simply stated, all companies have a D&O liability exposure; the risk is universal.

In today’s business environment, where laws and regulations are always changing, your organization and its leadership constantly face new exposures. D&O insurance protects the personal assets of the leaders who make decisions that affect the organization and its employees and partners while also protecting the company’s balance sheet and brand.

Here’s what Directors and Officers Liability insurance covers:

  • Directors, officers, leadership and employees for monetary judgments and settlements for negligence or breach of duty, loyalty or care to the organization
  • Claims made for civil, criminal, judicial, administrative and regulatory or arbitration proceedings and investigations
  • Breach of fiduciary duty, failure to exercise due care and employment-related suits that allege harassment, discrimination or wrongful termination

When considering Directors and Officers Liability insurance, it is key to make informed decisions based on your organization’s risk profile, industry and size. Consider the following before you buy.

Set program limits that are acceptable and sustainable to your company’s risk profile.

  • Leverage benchmark studies of companies with similar profiles to gain valuable information on what your limits should be
  • If your company is publicly-traded, review market capitalization changes that can indicate how investors could lose financial investments
  • Prepare strategies to reduce exposure to employment practices-related claims; these are a leading source of loss for private company D&O policies

Some examples of D&O claims that could impact your organization:

  • Regulatory bodies such as the US Department of Justice can investigate and press charges for misappropriation of grant funds
  • Donors can make a claim for misrepresentation of monetary donations
  • Clients and customers can sue for misconduct and failure of the organization to deal with harmful behavior
  • Suppliers and third parties can allege damages as a result of being promised business that never materializes
  • Competitors can allege patent and trade secret infringement by a former employee who now works for your organization
  • Employees who experience discrimination, harassment or wrongful termination can file suit
  • Shareholders can allege that leadership is not forthcoming in financial communications and misleads stockholders about the organization’s financial health
  • Creditors can allege fraudulent misrepresentation if the organization is unable to repay its debt obligations

Be clear about exactly who is covered under the D&O policy.

  • Your program should cover past, present and future directors, officers and employees for decisions, actions/inaction, dialogue and other choices made
  • Explore additional individual protections, such as Side A Difference in Conditions (DIC) coverage, to defend and indemnify all board and officer leadership when the organization is unable to offer these individuals indemnification
  • Ensure that personal assets aren’t at risk if D&O limits are exhausted prior to closure of a claim

Make sure your D&O coverage integrates with all your insurance policies.

  • Review your business continuity and emergency risk plans with your broker to ensure no coverage gaps exist, and that all your insurance policies are aligned
  • Leadership should understand the risks and potential losses that are covered by your D&O policy

Engage a credible broker and be sure to cover these additional matters as you determine coverage:

  • Discuss use of your preferred defense counsel, as opposed to the insurance company’s choice
  • Plan how potential allegations will be identified, communicated and handled
  • Validate your insurance carrier’s payment and claims history to ensure you will receive optimal service when you need it