Litigation Concerns For Directors and Officers for Public Companies

Litigation Concerns For Directors and Officers for Public Companies

Directors and Officers (D&O) liability insurance protects those men and women, as well as certain other individuals, against claims arising from actions they may have taken in the course of performing their corporate roles. The duties they perform, where they face potential liability exposures and increasing scrutiny, require the ability to navigate the legal landscape and this in turn opens them up to many unforeseen exposures.

The indemnification and insurance protections available to Directors and Officers for Public Companies are increasingly important given the current environment. A company’s D&O insurance will often involve multiple layers of insurance, usually composed of a layer of primary insurance and one or more layers of excess insurance for matters of increased financial exposure, in which case this additional coverage would then be triggered.

Public companies often targeted for litigation

Public companies, by their very nature, are often perceived to have deep pockets, which quite often makes them a target for litigation. They are also governed by a very strict set of regulated responsibilities to their shareholders, which holds management and the board of directors liable for any decisions made while they are in charge.

Whether charged with discrimination, wrongful termination, failure to pay back wages, or denial of permits and applications, the amount of some claims awards could be insurmountable in many cases and this is a risk that most public companies simply cannot afford to take. The types of claims filed are sometimes dependent upon the nature of the corporation.

For public companies, claims are primarily due to lawsuits by shareholders after some type of financial difficulties. Still, other claims may arise from shareholder-derivative actions, creditors (particularly after entering the zone of insolvency), customers, regulators (which includes those that would bring civil and criminal charges), as well as competitors (for anti-trust or unfair trade practice allegations).

It’s important to note that, for Directors and Officers for Public Companies, intentional illegal acts or illegal profits are typically not covered under D&O insurance policies; coverage would only extend to “wrongful acts” as defined under the policy, which may include certain acts, omissions, or misstatements while acting for the organization. Due to exclusions and as a matter of public policy, coverage is not provided for criminal fraud.