All companies have officers or managers that act on behalf of the company. These people make decisions to run the business on a day-to-day basis. Many firms also have a board of directors. The board exists to hire, evaluate and advise company management. They also represent the interests of shareholders. Directors also act on the company’s behalf.
Directors and officers liability insurance can protect a firm from claims based on the actions of directors and officers. Director and officer coverage is an important consideration for any firm that forms a Board of Directors. The policy can protect the firm against errors and omissions made by directors and officers while serving in their company positions. If someone believes they were harmed by a negligent act of an officer or director, this type of coverage can protect the firm against those liabilities.
Assume that a board of directors approves management’s plan to merge with another company. The company provides information to shareholders, who vote to approve the merger plan. The newly merged companies do not perform well. The firm’s stock price declines sharply after the merger, due to declining sales and profits. A group of shareholders determined that some of the financial disclosures about the merger were not accurate. Since these shareholders relied on the financial disclosures when they decided to vote for the merger, they pursue legal action. The shareholders claim that they were harmed when they relied on the inaccurate financial data.
If the firm has directors and officers liability insurance, that policy may pay for the cost of legal defense. The policy may also pay for any damages awarded, up to limits stated in the policy.
To determine if directors and officers liability insurance is something your firm should consider, answer these questions:
- Does your firm have a board of directors?
- Do you have shareholders that own an interest in your firm?
- Is your company publicly traded? Are you required to file periodic financial disclosures with the SEC (Securities and Exchange Commission)?
- Are you required to work with other federal or state regulators?
- Does your firm have loan agreements in place? Do your managers or directors make decisions that may impact the terms of a loan agreement?
If you determine that directors and officers liability insurance is a need for you, we can help. Our professional staff can discuss your firm’s specific needs and generate a directors and officers insurance quote for you. That quote will detail the situations covered by the policy, and the dollar amount of coverage. Request a free quote.
