Directors & Officers Doe’s and Don’ts

Directors and officers liability insurance helps protect the assets of firm, owners, executives and managers if individuals, competitors, third parties or government regulators make claims. A lawsuit against directors and officers most commonly occurs when shareholders (private or public), clients, competitors or others feel they suffered a loss in the value of their shares because of actions that the board or senior management took or didn’t take. Partners Risk Services can help your firm with a complete commercial business insurance review, call us today.

In case you thought smaller private firms are immune from litigation, here are actual claim examples.

Claim Examples

  1. A director of medical supply company was sued, along with his company, for allegedly misappropriating trade secrets. $200,000 was spent on defense costs and the case was settled for $400,000.
  2. The estate of a recently passed director (president) sued the other directors for recent company poor performance. Claim settled for $750,000.
  3. A company recruited a top sales person from a competitor who had an employment contract. The competitor sued for damages after losing its top producer. Defense costs were $250,000 and case was settled for $560,000.

Risk management, or loss control, is a concept well-known to corporate management. Most businesses large and small take precautionary measures to minimize the risks associated with fire, theft, product liability, work-related injury, and other common business exposures. Proactive management of D&O exposures can improve a company’s ability to recruit talented management, enhance the quality of corporate decision-making, and contain the cost of D&O liability insurance premiums.

What You Should Do

  • Consider Directors and Officer Liability Insurance
  • Determine if there are any conflicts of interests among the directors. Directors and officers should avoid situations where their personal interest may, or appears to, conflict with the best interest of the company
  • Directors need to be educated in the following:
    • Antitrust, political contributions, harassment, and confidentiality
    • There should be regular scheduled board meeting, including proper notice. Meeting minutes should be retained forever
    • Utilize a qualified attorney, insurance agent, and accountant to help you manage your risk.
    • Consider Employment Practices Liability Insurance. Employment-related claims represent a high-visibility, fast-growing area of D&O liability
    • Establish internal controls for accounting and financial reporting

What You Should Not Do

  • Fail to investigate financial issues or concerns
  • Don’t ignore basic fiduciary duties
  • Assume a family owned and run or small to medium business will never have any legal battles. What if there is a death or divorce of a director? Are you confident the estate or spouse will be of the same mind as the deceased or divorced director?
  • Think that federal laws and certain IRS statues don’t apply to your firm
  • Don’t assume your directors are protected under your corporate umbrella for liability and other damages or loss.

Call us today for more information.

 

 

February 24th, 2014 by Partners Risk Services