Directors and officer’s liability insurance helps protect your business, owners, executives and managers if individuals, competitors, third parties or government regulators make claims. A lawsuit against directors and officers most commonly occurs when shareholders (private or public), clients, competitors or others feel they suffered a loss in the value of their shares because of actions that the board or senior management took or didn’t take. In case you thought smaller private firms are immune from litigation, here are actual claim examples.
1. A director of medical supply company was sued, along with his company, for allegedly misappropriating trade secrets. $200,000 was spent on defense costs and the case was settled for $400,000.
2. The estate of a recently passed director (president) sued the other directors for recent company poor performance. Claim settled for $750,000.
3. A company recruited a top sales person from a competitor who had an employment contract. The competitor sued for damages after losing its top producer. Defense costs were $250,000 and case was settled for $560,000.
Risk management, or loss control, is a concept well-known to corporate management. Most businesses large and small take precautionary measures to minimize the risks associated with fire, theft, product liability, work-related injury, and other common business exposures. Proactive management of D&O exposures can improve a company’s ability to recruit talented management, enhance the quality of corporate decision-making, and contain the cost of D&O liability insurance premiums.
What You Should Do
- Consider Directors and Officer Liability Insurance
- Determine if there are any conflicts of interests among the directors. Directors and officers should avoid situations where their personal interest may, or appears to, conflict with the best interest of the company
- There should be regular scheduled board meeting, including proper notice. Meeting minutes should be retained forever
- Utilize a qualified attorney, insurance agent, and accountant to help you manage your risk.
- Consider Employment Practices Liability Insurance. Employment-related claims represent a high-visibility, fast-growing area of D&O liability
- Establish internal controls for accounting and financial reporting
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