Directors & Officer Liability Insurance
In today’s business climate of corporate transparency and accountability, an organisation’s officers and directors face a myriad of employment-related exposures.
Claims can come from many sources, employees, regulators, shareholders, creditors, customers, etc. Ever-changing regulations, increased employee awareness of employment rights as well as the rise of shareholder activism means directors are more frequently at risk, translating to rising claims and escalating settlement costs.
In the wake of recent unprecedented corporate scandals, clearly the trend of corporate accountability applies to large corporations. But, smaller privately held companies, including not-for-profits, are not exempt from litigation arising out of the management decisions of their boards. They, too, are at risk.
Regardless of your company’s size, the legal cost to defend a director is substantial, as are the potential penalties that can be personally incurred. Due to liability risks, protecting boardroom talent can be a challenge. To help ensure both your officers’ as well as
company’s well-being, a directors’ and officers’ liability insurance (D&O) policy is part of a comprehensive risk financing strategy.
D&O Fills the Cover Gap
Unlike liability policies that provide cover for claims arising from property damage and bodily injury, a D&O policy specifically provides cover for a ‘wrongful act’, such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.
For example, a manufacturer told one of its suppliers to increase inventory because they were expecting a large increase in production. As predicted, demand for the manufacturer’s product grew but the manufacturer increased its inventory with another supplier instead.
The original supplier successfully sued the manufacturer, alleging they suffered damages as a result of having relied on the manufacturer’s promise.
A D&O policy provides defence costs and indemnity cover to the entity listed on the policy declarations, which may include:
Cover for individual directors and officers
Reimbursement to the organisation for a contractual obligation to indemnify directors and officers that serve on the board
Protection for the organisation or entity itself
Consideration for Not-for-Profits
Many not-for-profit organisations with directors and officers often report some difficulty in affording the cost of D&O insurance. To minimise the costs, brokers should recommend choosing only those policy provisions considered most critical.
For example, a volunteer-run not for profit without paid staff may skip employment practices cover until it hires staff. To defray the cost of premiums, some not-for-profit organisations consider charging board members a portion of the policy cost.
Portal Broking Group: We’re Here to Help
Whether you are a not-for-profit, privately held or a public company, it is likely that your business can benefit from a D&O policy. Since there is no such thing as a ‘standard’ policy, a professional broker is invaluable when purchasing D&O cover.
We understand your organisation and can knowledgeably help design policy language to meet your needs.
Contact us today to learn more about the appropriate protection for your company against potential directors’ and officers’ liability.
Get in touch today on 01829 706436, or fill out the form below.