For companies that have directors and officers at their helm, who are conscious of the liability-laden lawsuit that has become the norm today, it is practically a given that the cost of doing business should include D&O insurance. This important coverage offers protection for both the company’s directors and officers and often the company itself for their professional liability should they become named personally in a lawsuit that could come their way from a variety of sources, paying for the often exorbitant expenses for legal defense-everything from legal fees and other court costs to settlements if those sued are found liable for the complaint.
Not having to bear the full cost of such defense can be all that stands in the way of financial hardship and even bankruptcy for these executives and their companies if they are named in the suit as well, considering that a single case could result in a multimillion-dollar settlement. The “if it will happen” factor is not so farfetched, considering that 12 percent of respondents in a survey of U.S. companies (all reporting annual revenues of less than $25 million) conducted by a major insurer revealed they had been named in such a lawsuit in the last five years, with settlements averaging $226,000 yet ranging up to a whopping $5 million-meaning 25 percent or more of their annual revenue in the worst-case scenario.
Where are the charges coming from?
These senior executives are most frequently sued by employees, customers, vendors, competitors in their industry, and investors. The insurance protects directors and officers by covering legal fees, settlements, and other costs; in addition, the coverage sometimes can extend to protect the company if it is named in a suit, as well.
Growing trends for suits
In recent times, these suits are increasingly being filed for occurrences of bankruptcy, a time at which directors and officers are sued by creditors, customers, lenders, and investors alike for the decisions they have made which the plaintiffs allege caused the company to fail. Another hot topic: so-called employee piracy, when a key employee’s former company files suit against the employee’s new employer (whether a start-up or an existing competitor) for allegedly stealing the former’s proprietary information, intellectual property, customer lists, and so on.
Talk to a professional insurance agent about D&O insurance so that your company’s directors and officers (as well as the company itself) are well protected from the significant risk they could face if targeted for one of these claims.