Why Do You Need D&O Insurance?
Directors and officers are responsible for making the tough choices that can make—or break—a company’s fortunes. In doing so, they must consider the best
interests of employees, customers and shareholders, while also keeping in mind corporate best practices. Limited or imperfect information and tight
deadlines add to the overall complexity of the decision-making process and can lead to poor outcomes or even outright mistakes.
As a Director or Officer of a business, you can be found personally responsible for your business decisions.
Consider the following:
A minority shareholder in a family-owned electrical contracting business sued the two major shareholders on behalf of the company, claiming they
breached their fiduciary duties. The minority shareholder claimed that the majority shareholders, by drawing excessively large salaries and bonuses,
caused the company to lose money. The court ruled in favor of the majority shareholders, but the defense costs amounted to six figures.
A mid-sized manufacturing firm hired an employee away from one of its competitors, bringing the person on as an officer. A year later, that new
officer's ex-employer sued the officer and his new firm, alleging that the officer misappropriated trade secrets and violated certain provisions of is
The plaintiff filed a complaint against their competitor alleging that a former employee, now working at the competition, engaged in unauthorized use
of confidential and proprietary information and committed other acts of unfair competition. As a result, the plaintiff alleged it has suffered
irreparable and immediate injury. In addition, the plaintiff alleged that the defendant has possession of its confidential information and intellectual
The federal government sued the CEO, the president and other officers of an East Coast manufacturing company for price fixing. After an extensive
trial, the allegations were dismissed due to lack of evidence, but the defense costs and fees incurred approached $1 million.
A company enters into an investment agreement with a third party and agrees not to negotiate with any other entity regarding financing or a potential
acquisition for a two-week period. During the exclusivity period, the company engages in negotiations with another investment group. The third party
alleges breach of investment agreement and intentional and negligent misrepresentation.
These are just some of the many ways you and your company can be sued for operating your business. The difficult and dangerous part is that these claims
are not covered by your General Liability policy and defense costs alone can be in the hundreds of thousands of dollars. Most businesses cannot pay that much
to defend a lawsuit and expect to stay in business. Do you want a competitor to put you out of business over a frivolous claim because you can't afford to
defend yourself in court?
Also, to hire and retain talented directors and officers, companies need to give them the freedom to make corporate decisions without the fear of being
personally liable for losses stemming from those decisions. Directors & Officers (D&O) insurance protects executives against the consequences of
any alleged or actual “wrongful acts” they commit while performing regular supervisory duties. Without D&O coverage, executives’ personal assets are at
risk in the event of a lawsuit.
Keep in mind that there are some limitations to D&O coverage. It does not cover cases in which fraudulent, criminal or intentional wrongful acts are
committed, or when acts are committed for personal gain. But no matter the size of your company, costly mistakes made by directors and officers can happen,
which is why it’s important to take steps to insure your executives against losses stemming from an incident. Contact Robertson Insurance & Risk
Management today to learn about the D&O coverage solution that’s right for you.