Directors, Officers (D&O) and Company Liability

Many company owners believe that D&O liability insurance is only for corporations with a Board of Directors.  While it is true that the Board of Directors can be held personally responsible for the acts of the company, partnerships and private ownerships are responsible for critical management decisions and policy set for the organization. Some think that because they have General Liability or Errors & Omissions insurance they do not need D&O insurance. This is a misconception.

While no corporation should be without D&O insurance, other businesses, such as partnerships and private ownerships make critical management decisions and set policy for the operation of the organization. Any such decisions can be called into question and lawsuits result. Any vendor or investor, and even competitors, can allege that your decisions have affected them badly, and they could sue. This product is intended to protect you when that happens.

Most often, Employment Practices Liability (EPL) protection is included in the D&O coverage (see separate page on EPL).

Summary of Product:

Insurable Costs Include:

  • Legal Fees (for the party being sued and the Company)
  • Damages (may also include Punitive Damages)
  • Settlements

Insurable Events Include:

A. Anti-Competitive Acts (aka Anti-Trust)

  • Unlawful restraint of trade, business or profession
  • Monopolies
  • Price-fixing and price-discrimination
  • Group boycotts
  • Exclusive dealing (selecting certain vendors or providers and excluding others)

B. Shareholder Liability:

  • Violation of SEC Regulations
  • Failure to disclose material information
  • Misuse of funds

C. Mismanagement:

  • Waste or neglect of assets
  • Failure to supervise or manage the organization
  • Fraud or abuse
  • Improper delegation of authority
  • Employment practices
  • Bankruptcy (For lawsuits that were incurred during the policy period because of the bankruptcy, claims filed during the run-off of the policy or up to 60 days thereafter, or within the Extension of Benefits Period.)

Actual Claim Examples:

1. A small company went bankrupt.  Creditors sued the Board of Directors (who are not protected by the company bankruptcy except when there is D&O insurance coverage).
Result:  $250,000 settlement plus $300,000 in defense costs paid by the Board members.
2.  An inactive partner sued the partnership
Result:  $25,000 settlement plus $125,000 in defense costs

You can call us at (818) 541-7900 or email us at info@mcpheeassociates.com