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Directors & Officers Insurance
D&O insurance is not just a shield for your company's leaders. It’s a strategic safeguard that fortifies the foundation of your business.
Legal allegations and lawsuits. Employee relations and wrongful acts. Mergers and acquisitions.
From legal defense costs to potential settlements, directors & officers (D&O) insurance is designed to protect an organization’s leaders, and the organization itself, from financial losses related to their management decisions in a range of scenarios.
Not sure if D&O is right for you? Let eSpecialty Insurance help by offering multiple proposals from leading insurers, supported by our expertise in assessing exposures and guiding you to select the optimal blend of comprehensive coverage and cost-effectiveness.
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Common D&O Exposures
Investor Lawsuits
Investor lawsuits can arise if an investor thinks your company provided misleading information or made poor decisions that impacted the value of the company (and hence their investment), and they choose to sue for damages.
For example, if a publicly traded company falsely represents its financial health, shareholders may later allege that the company provided misleading information and seek damages.
Self-Dealing or Corporate Opportunities
Self-dealing or corporate opportunities happen when a director or officer benefits from a situation or opportunity that is unrelated to the organization, which goes against their responsibility to act in the organization's best interests.
For example, an undisclosed personal interest in a trading partner could lead to an action alleging conflict of interest and self-dealing.
Theft of Intellectual Property or Trade Secrets
Theft of intellectual property or trade secrets refers to the unauthorized acquisition or use of valuable proprietary information belonging to a company, such as patents, copyrights, or business strategies, for personal gain or competitive advantage.
For example, a recently-hired employee could be accused of bringing his prior employer’s intellectual property (IP) to his new employer, resulting in a claim.
Data Security and Cyber
Data security and cyber risks encompass the potential threats and vulnerabilities associated with the unauthorized access, disclosure, or loss of sensitive information, often resulting in financial losses, reputational damage, and legal consequences.
Many types of cyber claims are excluded from a D&O, so it’s important to secure cyber insurance coverage to protect against a related claim.
Employee Lawsuits
Employee lawsuits are typically, but not always, covered under employment practices liability (EPL) insurance, which may or may not be a part of a D&O insurance policy. It’s important to understand what your policy covers.
For example, if an employee believes they have faced harassment, discrimination, or wrongful termination, they may sue the company and/or managers.
Regulatory Actions
Regulatory actions could be brought on by federal/state agencies or third parties for misconduct (financial or otherwise) or failure to adhere to regulatory requirements. Regulatory actions can result in costly audits or other lengthy legal actions.
For example, a financial institution could face an investigation by a federal regulatory agency due to alleged misconduct in handling customer funds.
Special Situations
Professional Organizations
Professional services are intended to be covered under an errors & omissions (E&O) insurance policy and are therefore typically excluded under D&O coverage. E&O insurance typically provides protection against claims of negligence or failure to perform professional duties. Some examples of professional services that are often covered under an E&O insurance policy include legal services, accounting and auditing, consulting, real estate, tech services, medical, financial, architectural and many others.
Side A Excess
In some instances, D&O insurance claims may deplete coverage, leaving individual directors or officers without protection. Side A Excess, named after the section directly responding to individual directors and officers (Side A), is a separate coverage that can be obtained with its own limit, crucial for safeguarding personal assets by offering additional coverage exclusively for directors and officers beyond the organization's D&O insurance.
Buying or Selling a Business
When acquiring or divesting a business with D&O insurance, it's common practice to terminate the insurance on the closing date and establish tail coverage, which protects against claims arising from pre-closing events reported after the closing date, typically extending for two to five years.
While some D&O policies include the option for tail coverage, there is a competitive market for standalone tail coverage from third-party insurers, often offering more favorable terms.
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D&O insurance coverage checklist
Effective risk management is essential for minimizing potential exposures, and taking proactive measures can significantly reduce the risks faced by directors and officers.
Comprehensive Training Programs
Implement regular training programs for directors and officers to keep them well-informed about their roles.
Corporate Governance Policies
Establish and enforce strong corporate governance policies that promote ethical behavior, transparency, and accountability.
Regular Risk Assessments
Conduct regular assessments of legal, financial, operational, and reputational risks to identify and evaluate exposures.
Cybersecurity Measures
Utilize robust cybersecurity measures to protect sensitive company and customer data, and keep cyber insurance policies up-to-date.
Contract Review & Due Diligence
Review contracts carefully before entering into agreements. This includes mergers, acquisitions, and partnerships.
D&O Insurance Review
Regularly review and update directors and officers insurance policies to ensure they provide adequate coverage for potential liabilities.
Note: Insurance policies are not all the same. Some policies are more comprehensive than others, and some policies provide broader coverage in specific areas. In addition, each insured may have different exposures and coverage needs. We encourage you to read your policy and consult with an insurance expert such as eSpecialty Insurance.