Directors & Officers Liability (D&O) Insurance is perhaps one of the most misunderstood types of insurance coverage, but also one of the most valuable. D&O coverage is most often associated with large publicly held companies, those with boards of directors and stockholders, but if you think that D&O insurance may not be right for your business, think again.
D&O Insurance Isn’t Just For Big Business
The very name “directors and officers” may lead you to believe that only large companies with boards of directors and stockholders need this coverage. That isn’t the case.
A 2013 private company risk survey found that D&O lawsuits are nearly as common for private companies like yours as they are for publicly held companies. In fact, 27% of all D&O lawsuits filed in the past 10 years were against private companies versus 33% of public companies.
Most startling: 38% of the D&O lawsuits filed against private companies in the last 10 years weren’t filed by stockholders. They were employee-related claims. While EPLI would cover most employee-related claims, company officers who are personally sued need D&O coverage to protect them.
You Could Be Held Personally Liable
You may think that decisions you and your company officers and managers make during the course of business are covered under the company insurance. However, commercial general liability policies usually exclude financial consequences due to alleged misdeeds.
If a lawsuit is filed against any officers or managers personally, the defendant’s personal assets may be at risk. Even if the lawsuit isn’t filed directly against company officers, the courts could determine that the officers should be held responsible by piercing the corporate veil.
D&O insurance is designed to protect you, your company directors, your company officers and your managers from personal lawsuits. Even if an employment contract agrees to indemnify an officer or director from any claims, the cost of defending in the case of a suit may be too much for the company to bear.
D&O Claims Are Costly
According to the 2013 study mentioned above, the average cost of a D&O claim was in excess of $600,000. For a medium sized business that is a big hit. For a small business, that amount could lead to bankruptcy. Even if the claim isn’t valid and no money is paid, the cost of litigating to a conclusion can be steep.
D&O coverage is available for nearly every type of business, public or private. It can be purchased for municipalities, schools and even nonprofit associations.