Directors and officers rarely understand that their personal assets could be at risk for decisions they make in the work place. Furthermore, we frequently encounter clients who have a misdirected assumption that their General Liability (GL) insurance will provide coverage for their Directors and Officers (D&O) exposure. The GL policy is not designed nor structured to provide protection against many legal issues that can arise with a privately held company. The most effective way to eliminate the exposure against D&O’s personal assets is to carry a Directors and Officers Insurance Policy.
What to Know About Directors and Officers Insurance:
If you are an owner of a privately held company, you have invested a lot of time and resources into the success of the business.
It’s estimated that the average cost to defend a D&O claim is somewhere between $100,000 and $2,000,000, regardless of the claim validity!
Consider the consequences for a business to accumulate a defense tab of that magnitude – it could be business crippling, or possibly take a business out altogether; let alone the personal assets of the businesses’ directors.
See also: Cyber Liability Protection for Your Business
Examples of Directors and Officers Allegations:
- Failure to properly assess a business prior to acquisition
- False information regarding the financial position of the organization to a client or financial institution
- Misrepresentations or false statements regarding future performance of the organization to investors
- Negligent management strategy which results in bankruptcy
- Breach of security duties, or statutory law
- Conflicts of interest with respect to personal opportunities vs. the best interest of share holders
See also: Mercury’s New Home Program
Claim Examples:
- An officer at a software technology firm was sued, along with his organization, for allegedly misappropriating confidential trade information. The defense costs of the claim racked up to $150,000, and the case was eventually settled at $350,000.
- The estate of a deceased director sued the other company directors for poor company performance. The claim settled for upwards of $700,000.
- A company hired a top sales member of a competing company, and the sales person had an in force employment contract. The sales person’s previous employer sued the competitor for damages of losing its top producer. Defense costs were roughly $250k, and the case settled for over $560,000.
See also: Accident Insurance For Your Business
If you have questions about your Directors and Officers Policy, contact us and we would be more than happy to help in any way we can.
Carlsbad Office: 760-795-2002
Temecula Office: 951-296-6833
