“It won’t happen to us”. 

“We have coverage under our General Liability”. 

“This is the way we have always had our insurance”. 

“We are family owned; we always operate above the Board of Directors”. 

There are many common misconceptions regarding Directors & Officers liability as identified by two of our specialists, Jena Crouch and Teresa Leonard.  However, the reality is that should a suit arise, the defense costs alone can absolutely devastate a business. 

If you’ve ever played a game of chess, you’ll know – chess is a slow game.  There are many long-term strategies involved; mastering the rules, learning the players, patience, planning – sounds similar to owning a business, right?!  In chess, you protect the king, the king represents the most invaluable piece on the board.  In business, the people of the organization are the most invaluable piece; leadership, management, employees.  Learn how to protect the ‘king’ of your company by purchasing Directors and Officers insurance. 

What Is D&O? Why Do I Need It?

“Only Nonprofit organizations need D&O coverage”.  Wrong.  Another very common misconception.  While the Nonprofit sector does have a D&O exposure, so does every publicly traded and privately owned company.  In today’s regulatory and economic environment, just about anyone can bring forth allegations of wrongful acts such as misstatements, misleading statements and breach of duty against a company’s Directors and Officers for their decisions and actions as the leaders of company.  When we say, ‘just about anyone’, who do we really mean?!  Anyone who has an interest in your business, has invested in or donated money to your business, feels as though your business has been negligent, committed a wrongdoing or breached a contract can bring forth allegations.  Shareholders, Competitors, Banks or Creditors, Government Agencies, Suppliers, Customers or Clients; think about your own operations, does your business depend upon or involve any individuals within those categories? 

Jena Crouch, a Sales Executive out of our Tipton, IN office, works with her clients to evaluate who makes the decisions within their business and how they make those decisions.  She identifies if the organization has a Board of Directors and then dives one step deeper to review if they are paid or volunteer board members.  As a business owner or board member, insurance decisions are made to protect the business from theft, fire, and unforeseen accidents, but what about protecting the personal assets of your leadership and the assets of the company? 

What Claim Activity Would a D&O Policy Protect Against? 

D&O claims are often not as frequent as they are severe.  How severe?  According to the Professional Liability Underwriting Society, a survey of 451 executives of privately-owned companies produced some startling facts. 

• 26% of private companies have faced a D&O claim in the past 5 years. 
• The average loss for companies with D&O insurance is $130,000. 
• The average loss for companies without D&O insurance is $408,000. 

Why are companies without D&O insurance suffering losses almost three times as costly as those with D&O insurance?  Because of the resources available by the insurance company.  Without insurance, this could be ‘your first rodeo’, with D&O coverage, our carrier partners specializing in this line of business have dedicated claims professionals and experienced counsel who have represented D&O cases before, therefore you aren’t navigating the claim on your own.  The carrier takes over the investigation and litigation thus reducing major operational disruption to your business and allowing the business owner to continue dedicating their time and resources towards running the business.  

Teresa Leonard, an Account Manager out of our Greenwood, IN office, has a strong background in Management Liability and knows firsthand that every business is vulnerable to allegations of misconduct.  She urges her clients to prepare in the context of real-life scenarios like a competitor alleging that your company stole their trade secrets or their employees, in the form of non-compete agreements, or your shareholders who could allege mismanagement of the business whether it is spending or simply the direction the business is going in. 

The insurance industry is full of war stories and claims examples.  The intent of those studies is not to scare consumers into purchasing insurance, it’s not to exploit the misfortunes of others, the intent is to educate through real life scenario, as Teresa provides her clients, so one can visualize how quickly something like this could happen within their own operations.  Say your business develops a new product.  If it doesn’t perform as presented or expected by the investors, the investors could bring forth a suit for misrepresentation during the initial investment process.  Misappropriation of funds allegations could follow a donor claiming money contributed for a specific purpose was being allocated apart from the intended cause.  Directors and Officers insurance will protect and defend the business whether the claim has merit or not. 

We will be sharing more of Jena and Teresa’s Management Liability expertise introducing Fiduciary Liability next week.