After an accident involving a company vehicle, prosecution was brought against a company’s transportation director. It was alleged that the company’s fleet practices designed and implemented by the director often left drivers tired and unfit to drive. The fatigue of the driver involved in the accident was deemed to have been a major contributing factor in causing the accident. The company had no Directors & Officers (D&O) liability policy. The director was forced to fund his own defense costs.
Businesses purchase “common” insurance coverage all the time, for example:
property insurance to protect buildings and physical assets,
general liability to indemnify third parties injured on company property, and
workers’ compensation to protect employees who are injured at work.
Management Liability insurance provides coverage beyond a general liability policy, covering exposures faced by directors, officers, managers and business entities that arise from governance, finance, benefits, and management activities, including:
Legal defense costs
Judgements or settlements from lawsuits alleging a variety of mismanagement or wrongful acts within the context of operating a business.
Coverages provided by a Management Liability policy typically include:
Directors & Officers (D&O) Covers directors and officers for claims made against them while serving on a board of directors and/or as an officer. Covers claims resulting from managerial decisions that have adverse financial consequences.
Fiduciary Liability The responsibility on trustees, employers, fiduciaries, professional administrators, and the plan itself with respect to errors & omissions (E&O) in the administration of employee benefit programs as imposed by ERISA.
Employment Practices Liability (EPL) Covers wrongful acts arising from the employment process, such as wrongful termination, discrimination, sexual harassment, retaliation, etc.
There is nothing mysterious about a D&O policy. D&O liability protects the executive leadership of private, public, and non-profit businesses from claims arising from daily management decisions. Typically, there are three parts to a D&O policy:
Part A – provides protection for the Directors and Officers from personal liability
Part B – provides protection for the company’s indemnification of its Directors and Officers
Part C – provides protection for the corporate entity
No business organization, regardless of size, is immune to liability associated with daily business activities. This coverage should not be overlooked and is important to qualified executive staff and board members. The cost of defending corporate lawsuits can be significant and can quite possibly exceed the net worth of many private companies. Protect your business and provide your executive team (which may include you) the security and peace of mind that their home, personal finances and assets are secure should something in the company go wrong.
Consider this: November 2021 – a $237.5 million settlement was paid out by current and former Boeing Company directors to resolve claims that these individuals of the company ignored safety issues concerning Boeing’s 737 MAX aircraft. Personal assets of the directors and officers named in the lawsuit were not impacted; the entire settlement was funded by the company’s D&O insurers.
No one is perfect. Mistakes can happen, even with the best intentions. Directors & Officers liability insurance is important.