Every Customer Counts       630-954-1414

Director’s & Officer’s Liability

What is D&O Insurance?

  • D&O protects the company’s assets against lawsuits brought by shareholders and third parties.
  • D&O protects the personal assets of a company’s directors and officers.
  • D&O provides reimbursement to the organization to indemnify directors and officers for their losses.
  • D&O helps the company monitor and provide defense costs associated with responding to lawsuits and investigations.

Why Buy D&O Insurance?

  • The cost of defending corporate lawsuits may exceed the liquid capital of most private companies.
  • Corporate indemnification may not be available.
  • Directors are held to a high standard and have legal responsibilities including:
    • Duty of Care – Requires directors and officers to act prudently and reasonably in regard to the management of the organization’s affairs.
    • Duty of Loyalty – Prohibits directors and officers from using their position in the organization to further their own personal interests.
    • Duty of Obedience – Requires directors and officers to ensure that the organization is run in accordance with its charter and bylaws, and that the organization complies with applicable laws.
  • The personal assets of the individual board members are at stake in lawsuits.
  • Judgments can have a devastating impact on the operating budget of any organization.
  • Contemporary corporate scandals have heightened regulation of boards accounting practices.
  • The Internal Revenue Service has increased their corporate scrutiny through audits.
  • Bylaws may indemnify the Board, which does not guarantee the entity has the resources to fund the cost of a claim.
  • Bad business decisions are more visible for a small business.
  • Bankruptcy exposure.

D&O Claims Examples

  • Misrepresentation/Deceptive Trade Practices
  • Class Action Complaints
  • Conspiracy & Negligence
  • Shareholder Derivative Action
  • Creditor Claims
  • Breach of Investment Agreement
  • Breach of Fiduciary Duty
  • Inadequate Financial Reporting
  • Foreclosure/Unfair Competition

Actual Claims

A service company’s advertising campaign centered on customer service. The campaign stated that much of their recent growth was due to a competitor’s lack of customer service and the inexperience of their employees. The competitor filed a suit alleging the campaign interfered with business. The jury awarded $1,200,000 in damages.

A director of a 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.

The minority shareholder of an insurance agency alleged that certain board members conspired to limit the amount of shares the minority shareholder might purchase, contrary to articles and by-laws. The jury awarded the minority shareholder $250,000 in damages.

The estate of a recently deceased director sued the other directors for poor performance by the insurance agency. The claim was settled for $750,000.

A company recruited a top sales person from a competitor who had an employment contract. The competitor sued for damages after losing its largest producer. Defense costs were $250,000 and the case was settled for $560,000.

Agent Sales Tips

The best way to sell D&O insurance is to start a conversation with your client or prospect. Think about using these tools:

  • Develop a one page sales or marketing sheet about D&O coverage
  • Send it to clients and prospects
  • Develop conversation talking points
  • Have you ever considered D&O insurance?
  • Can I share a few real claim examples?
  • Have you ever considered the cost benefit of insurance vs. defending yourself?
  • Could you see your firm ever having a D&O claim?
  • If I could provide a number of reasonable options would you consider D&O insurance?
  • Ask about estate planning if an owner were to die or get divorced.
  • If you had a claim without insurance, how would you pay for it?
  • If I could design the right combination of price and coverage, would that be of interest to you?