A company’s directors and officers (D&O) have a tough job; they make important decisions that impact many. With this responsibility comes potential legal action, making D&O insurance vital for your business.
Directors & officers have to consider the best interests of employees, customers, and shareholders, while also keeping in mind corporate best practices in each decision they make.
What Is Directors & Officers Insurance?
Directors & officers (D&O) insurance protects executives against the consequences of any alleged or actual “wrongful acts” they commit while performing regular supervisory duties.
The Unfortunate Truth…
The truth is, mistakes happen, especially if you only have a short amount of time and limited information to make a significant decision. In those situations, directors & officers can be held legally responsible for the repercussions of those mistakes. That’s why D&O insurance is so vital; without it executives’ personal assets are at risk in the event of a lawsuit.
An Example Of How Valuable D&O Insurance is…
A class action lawsuit was brought against a Canadian mining company and its board of directors, accusing them of allegedly misrepresenting the cost of construction on one of their mines. When the costs exceeded the initial prediction and were projected to keep increasing, share prices plunged. The suit was brought on behalf of shareholders that had bought shares at the prices calculated after the construction costs were misrepresented. Defence costs reached about $7 million, which D&O insurance helped cover when the lawsuit was successfully defended.
What Isn’t Covered In Director & Officer Insurance?
Keep in mind that there are some limitations to D&O coverage. It does not cover cases in which fraudulent, criminal or intentional wrongful acts are committed, or when acts are committed for personal gain.