Like many businesses, one Las Vegas-based real estate developer was hit hard by the recession, leading to bankruptcy just a few years later. Although the firm had originally purchased a robust $20 million D&O policy, they reduced their D&O limits significantly in an effort to survive financially. While their HUB broker warned them otherwise, they hoped their liability was diminished after selling off several assets.

Once they filed for bankruptcy, though, the firm’s management recognized their personal legal liability, and purchased a D&O Tail policy. Although the company’s balance sheet couldn’t afford it, the management group pooled their personal funds together and worked with their HUB broker to purchase the D&O policy for just $1 million in coverage. It was all they could afford.

Just 11 months later, the firm’s management – specifically eight C-suite members, including some who hadn’t been in the business for several years - were named in a lawsuit by a group of investors and creditors who were owed money. The claim was general mismanagement of the firm and breach of fiduciary responsibility, and the lawsuit demanded $12 million in damages.

During the first round of mediation between the parties, the firm’s management spent $500,000 – half their D&O policy’s worth. When arbitration was unsuccessful, the insurance company paid out the remaining $500,000 balance, dividing it evenly among the eight C-suite members, and pulled out of the case.  

The take home? You could be personally responsible for your actions as a business executive. You’re taking a major risk when serving as company management, and that liability doesn’t cease to exist when you leave the firm, or when they’re no longer in business.

Contact your HUB broker today to ensure you have the right D&O policy for all potential D&O risks and scenarios.