Why Private Companies Need Directors and Officers Coverage

Why Private Companies Need Directors and Officers Coverage

If you are at the helm of a rather small, closely held private company, you may be of the opinion that the nature of your organizational structure is such that the need for insurance for directors and officers for private companies is little to none. If so, you’re not alone, as shown in the results of a survey conducted by one of the industry’s leading insurers. The survey found that many top executives of small companies-particularly smaller firms with just a handful of shareholders-simply fail to believe that the size and type of their companies mean that they are exempt from claims for which this coverage provides protection. Unfortunately, what these executives are failing to keep in mind is that these cases can be brought by not only shareholders but all manner of individuals who are angry, dissatisfied, and otherwise unhappy with the leadership and/or the company they represent, including but not limited to:

  • Employees
  • Vendors
  • Customers
  • Suppliers
  • Regulators
  • Creditors
  • Competitors

A wide range of events, too, can result in costly lawsuits, such as:

Such was the case with a small boutique firm that provided marketing consultant services to a variety of clients in the greater metro area. The company, which had started out as a family owned and operated company, grew in breadth and depth of services yet maintained a rather provincial organizational structure, and as such felt professional management liability coverage an unnecessary expense despite advice from their agent who recommended purchasing a policy. Sure enough, one day the firm experienced what 44 percent of the surveyed private companies did in the three years prior to the survey: a claim related to directors and officers liability, employment practices liability, fiduciary liability, employee fraud, workplace violence or cyber liability.

In today’s sue-happy environment where many people think that a lawsuit against a company with perceived deep pockets is the easy way to get rich quick, the reality is that a directors and officers for private companies insurance claim can come from just about any direction-and even small, privately held companies cannot sidestep this exposure. Talk to your professional insurance agent about a comprehensive business insurance program that includes professional management liability protection for your senior leaders.