Why your company needs D&O insurance
Your company’s management is protected by D and O insurance in case they are personally liable for business decisions and actions made by them. The directors and officers policy, which covers the company as well, will cover legal fees, settlements, and all other costs related to allegations of breach of fiduciary duty, misrepresentation, or errors & omissions brought against the company’s board of directors or officers.
Your coverage provides your leadership with the confidence to make decisions without fear of personal financial loss.
Many small business owners think that directors’ and officers’ insurance is unnecessary and that they won’t experience these types of claims. Unfortunately, this isn’t true. Companies of all sizes, including public, private, and nonprofit companies, can be liable for D&O claims. During a three-year period, more than one-fourth of private companies experienced D&O claims, according to a Chubb survey conducted in 2016.
Such situations can quickly become overwhelmingly stressful and expensive. It is estimated that these claims result in an average loss of nearly $400,000 per claim for those without D&O insurance.
It’s not just that D&O claims are expensive; they’re also complex, stressful, and can drag on for years. If your company’s leaders are not properly covered, it may distract them from running the business effectively. A company or organization with a board of directors, those with investments, or those whose financial management may be questioned should strongly consider D&O insurance due to the complexity and costs associated with these claims.
It is possible for a company’s directors and officers to be protected from lawsuits when the right insurance policies are in place.
The following are some of the reasons we recommend most businesses purchase D&O insurance:
The powers and responsibilities of directors and officers are enormous. The decisions they make affect the operations, finances, and personnel of the organization. This puts them at risk of litigation on a broad scale. The size and type of lawsuits brought against directors and officers can vary greatly, from small claims by dissatisfied employees to large securities class action suits by shareholders.
If third parties, partners, or investors allege that executives misused company funds, made errors or omissions, or misrepresented company assets, they may be held personally liable, even if they acted on behalf of the company.
Moreover, if the organization offers its employees benefits, the leadership has an obligation to manage them effectively. In the event of an allegation of otherwise, employees and government agencies will be able to sue.
The government also regulates private companies. Government enforcement actions brought against your management team or company can be extremely expensive and can trigger formal legal actions from governments and private entities. Government or independent agencies could take action against the company if they determine it violated workplace laws or lacked corporate governance.