Earning a leadership position in a company isn’t all about privilege. Sure, a director or officer position is a big deal. It might come with a corner office, higher pay, and a boatload of stock options.
But if things go south for the company, there’s also a greater risk of personal accountability for the higher-ups in any business. A variety of claims against a business or organization can focus on leadership posts for responsibility and liability. Just a few examples of the potential claims directors and officers may face include:
- Failure to comply with federal, state, and/or local regulations
- Failure to provide a safe and secure workplace
- Pollution or other environmental regulatory claims
- Employment practices/HR issues
It’s pretty clear that when an organization is considering a hire for a director or officer, it’s a smart decision to consider D&O Insurance (Directors and officers liability insurance). When troubling situations face a company (whether its market conditions, fraud or other factors), it’s pretty common for the company’s directors and officers to come under scrutiny.
“A typical scenario today is a quick sale of the company’s assets in a distressed situation,” John G. Loughnane wrote for the American Bar Association. “In the usual case where sale proceeds are not sufficient to satisfy all constituents, a fiduciary (such as a creditors committee or liquidating trustee) may bring litigation against the directors and officers with the goal of increasing the pool of funds available to creditors …”
D&O is liability insurance that’s payable to either the directors and officers of a company, or–more likely–to the organization for which they work. It serves as a reimbursement for losses or defense costs incurred because of legal action as a result of wrongful acts done in their capacity as leaders of an organization.
Legal actions that arise out of alleged wrongful acts of directors and officers can include civil lawsuits as well as criminal charges–and the worst part is that those actions can occur simultaneously.
According to the Insurance Information Institute, D&O Insurance contains several “sides:”
- Side A: If the company or organization cannot indemnify its directors and officers, this protects those individuals.
- Side B: Protects the organization’s bottom line by reimbursing the organization or company when it indemnifies its directors and officers.
- Side C: Offers “entity” coverage, which comes into effect when the directors/officers as well as the insured company or organization are named as co-defendants in a securities lawsuit. This “side” eliminates disputes of coverage allocation.
It’s important to note that there are limits to D&O Insurance. Actions like theft by deception, fraud, personal profiting, bodily injury and property damage, and even prior or pending litigation may not be covered.
To find out how a D&O insurance policy can help your business or organization, contact Shields Insurance Agency today at (205) 783-5893.Posted on