Wondering if your business should be protected by D&O insurance?

Many businesses struggle with this question. Litigation against Fortune 500 directors and officers is shocking, but it doesn’t alarm most small-business owners. However, it is the small businesses who are being sued with alarming frequency. Below you’ll find all the information you need to make an informed coverage decision.

In addition to directors, a Directors and Officers’ liability (D&O) insurance policy may protect officers, volunteers, employees, board members and trustees. It will typically cover damages and legal defense costs related to administration and management of the organization.

Nexus Partners Insurance offers extensive experience in this complex field. Our customers include regional and national for profit and non-profit professional organizations. An agent from our business insurance group will be happy to meet with a representative of your organization and discuss your exposures and options for protection. Just call our office to speak with an agent, evaluate your situation, and compare quotes from several insurance carriers.

Which businesses should have D&O coverage?
Becoming a director or officer of a corporation puts your personal assets at risk. A director or officer can be sued personally for decisions made on behalf of the company. If you answer “yes” to any of the questions below, your company should strongly consider D&O.

• Do you have outside board members?
• Are you finding board members reluctant to serve because of potential personal legal liability?
• Do you have outside shareholders?
• Is your company undergoing a change in control, such as a merger, acquisition and restructure?
• Do you anticipate an initial public offering?
• Do you report your financial performance?
• Do you borrow money?
• Is your company subject to governmental regulation?
• Are you publicly owned?

Why is D&O coverage important?
Directors and officers owe three distinct duties to the company they lead:

• Loyalty – They must put the interest of the corporation above their own.
• Obedience – Their actions must be driven by the corporate charter and bylaws.
• Diligence (Care) – They must demonstrate both expediency and knowledge.

Breach of these duties may result in a D&O lawsuit that puts the personal assets of the directors and officers at risk. Additional statutes, such as Sarbanes-Oxley, make serving as a director even more onerous.

How does it work?
Directors and officers liability coverage helps protect the personal assets of your directors and officers from litigation due to alleged mismanagement of the company. It provides cash to pay for the attorneys defending them, whether or not they were negligent. It also can be extended to cover the company itself if it is brought into a lawsuit against its directors and officers.