Owners of private corporations without shareholders often believe they do not need to be protected against the liability of directors and officers. This misperception is largely due to the fact that small, privately-held corporations often do not have a formal board of directors or shareholders. They therefore limit their exposure to lawsuits, and disregard the need for D&O liability protection. This is not true, despite it being logical.
Who wants to…
D&O coverage can protect your administration choices, whether or not you have a board of administrators. Who makes the decisions? Who wants safety? D&O insurance covers ALL employees and protects them for any decisions they make on behalf the company.
Who would bring a motion against an organization? You probably thought of shareholders. And, you’re proper. But it doesn’t stop there. Anyone who feels they have been injured by an organization’s actions can file a legal action against the company and its decision makers. It could be claims made by:
- Businesses that are governed by government regulations
- Suppliers and distributors
- Opponents
- Clients
- Collectors
- Possible merger or acquisition partners
Have a closer look…
Lawsuits brought by collectors, federal government, and regulatory companies, while routinely ignored, can destroy a business. Why? Once they take legal motion, not only could it put the company in danger of survival, but also the private belongings of those concerned. Even if there is no finding of wrongdoing the costs can reach six figures, and could bankrupt a small business and individuals.
- Collectors: The financial position of an organization can change within a day. We saw financially secure companies undergo major financial issues during the 2008 housing crisis and the current financial reality. A company that defaults on payments to its creditors is vulnerable to accusations of mismanagement and failure to disclose information. D&O coverage offers protection against many of these allegations.
- AuthoritiesA company will thrive if it has happy employees, satisfied clients, and everything is running smoothly. Who would be motivated to bring a legal action against the company? The federal government might. The Department of Justice, which is tasked with protecting consumers, could take action against a company at any moment. These claims are impossible to predict and very expensive to defend. Even if the federal government drops the case after finding no wrongdoing, the costs of protection are high. D&O insurance provides protection against many of these incidents.
The subject is severity, not frequency…
Every business, no matter how small, should be aware of the exposures they may face that can be covered by D&O coverage. D&O liability is not a problem of frequency, but one of severity. D&O claims are unlikely to occur in most companies, but if they do, the cost to defend against allegations could put them out-of-business if they’re not properly insured.
