Directors & Officers Liability coverage provides protection for the personal assets of directors and officers against liability resulting from their management responsibilities in a corporate setting.

Claims against Directors and Officers arise out of their management actions and are as varied as the corporations they govern. Claims against directors & officers typically take the form of:

• Direct shareholder actions
• Derivative actions brought in the name of the corporation
• Employment related practices
• Actions brought by competitors, vendors, suppliers, regulators or creditors, etc.

Companies usually purchase Directors & Officers Liability insurance to protect their management team from liability arising from their service to the corporation.

Public company shares are traded on the major stock exchanges, such as NYSE, NASDAQ or over-the-counter exchanges. By virtue of their public status, they are subject to a myriad of disclosure and reporting requirements under the securities laws. Often their public status translates into a perceived deep pocket and makes them a more likely target for costly litigation.

Corporations of all sizes need to have this coverage. In addition to the D&O exposures, they can also protect their EPL exposure through the purchase of a combination D&O/ EPL policy as the majority of claims are filed by employees. An organization with any of the following characteristics has a higher then average exposure to D&O lawsuits:

• Contemplating an Initial Public Offering (IPO) or Private Placement
• Providing loans to its Directors and Officers or key employees
• Establishing a related business or doing business with a firm owned by a director, officer, employee, or family member
• Shareholders with ownership interest in the Company but not a Director or Officer such as family members, investors, or former employees
• Not having an annual audited financial review by a CPA firm

Claim Example:  The Insured decided to expand and acquired a small company in a related field. After operating the newly acquired company for several months, the Insured realized that poor accounting and collection procedures had been in place for some time and sales projections were unrealistic. The decision to acquire the company and the purchase price were based on faulty information. A concerned shareholder consulted a CPA experienced in mergers and acquisitions and decided the Insured paid too much. The shareholder sued each of the Insured’s Board members for making an uninformed decision and failing to substantiate the seller’s information by consulting with appropriate experts. Before trial, the Insured settled the shareholder claim for over $200,000.

There is a common misconception that the Board of Directors of Non Profit organizations are granted immunity from lawsuits. Although protection is provided to the Board under state law, there is no immunity from federal statutes. Most lawsuits originate under federal law. Immunity laws only protect volunteer members of the Board, but there is no protection to the Executive Director or paid employees. Finally, immunity laws only protect the individual Directors and Officers. However, most lawsuits are made against the entity itself, which will still have to provide its own defense. The average cost of defending a non profit lawsuit closed by litigation is over $147,000. Without D&O protection, most non profits are forced out of operation.

Regardless of size, all non profits need this important coverage. According to the latest surveys almost 80% of the litigation against non profits are brought by employees. Non profit policies will generally include employment practices protection for no additional charge. The classes of business with the highest frequency of claims are:

• Condominium/ Homeowners Associations
• Country Clubs
• Healthcare Providers
• Membership Organizations
• Schools
• Social Services Organizations
• Trade Associations

Claim Example:  A country club was sued after it refused to allow a member the use of a golf cart after torrential rains soaked the course. The member sued under the Americans with Disabilities Act (ADA) alleging he was discriminated against because his physical limitations would not allow him to walk the golf course. The club testified that by allowing the use of the golf cart the member would have called thousands of dollars in damage. The club was acquitted of any wrongdoing, however it expended over $70,000 in defense costs.