The strengths and weaknesses of D&O policies
As a sign showing that a country perhaps needs a little moderation – here is the spontaneous reaction of citizes in cases of suffering a loss making them sue anyone they consider responsible. No wonder the business of litigation attorneys has had the greatest growth in the latest ten years. They seem to have been printing money with their readiness to suing anyone that moves, but it is true that they have been working very effectively.
Knowing our society to be so litigious, you should put your protection in the first place. The economic times we are living in is not the easiest ones. A lot of people who invested in the stock exchange have lost money. Your customers feel you have not always provided value for money. Competitors feel they have lost unfairly thanks to the way you have run your business. Employees have been terminated. Investors who put money into start-ups have been ruined. There is the risk of being sued by any one of these people, or all of them every moment. And theses are the directors and officers of companies who are under attack. No matter how big I sthe company, whether it is for-profit or nonprofit. People usually sue regardless. It is often so that the claims are not quite fair… Attorneys got used to the practice of joining directors and officers to claims against the company alleging merit whatever the circumstances… or claiming a breach of the fiduciary duty owed to the company. The purpose is to put financial pressure on the company and all the individuals joined as defendants to settle.
If you are put in such a situation the costs for forming your own legal team of defendants can be tremendous unless you have secured yourself with appropriate insurance. Such protection can be assured by a D&O policy. It covers all directors and officers against claims of wrongdoing while in office and pays the costs of the defense. However before rushing to purchase this type of policy, take a minute to overview its strong and weak points. A D&O policy should not be confused with Errors and Omissions Liability. The latter protects the company against claims of negligence or as well as other failures of performance in the delivery of services and good’s design and manufacture – without covering the duties of the senior officers of the company. It can be a good idea since to carry both business insurance types. As if you fail to have the E&O policy here a different problem arise, you may lose the competent people as many of them won’t accept the role of director or senior officer without an adequate cover in place and wouldn’t expose their personal assets to risk…
So you see that harassment and discrimination are the most common actions against directors and officers. That’s why you should always carefully read the wording of the policy to ensure there’s good cover for Employment Practices Liability. One of the most common exceptions are those for a claim brought by one director against another, or for dealing with personal allegations of fraud or the deliberate breach of laws involving dishonesty. As a business owner you also need to understand the borderline between claims covered by the general business insurances liability policy. Try to find the right balance if you wish to buy efficient protection.