WHY DO I NEED DIRECTOR’S AND OFFICER’S INSURANCE (D&O)?

Written by on 9/5/2018 7:15 AM in , , , , . It has 0 Comments.

Directors and Officers insurance protects the personal assets of directors and officers, and their spouses, in the event they are personally sued by other parties for (alleged) mis-management of their company or organization.

What is the difference between Commercial General Liability (CGL) insurance and Director’s and Officer’s (D&O) Insurance:

o   CGL provides coverage for claims arising from third party property damage and/or bodily injury.

o   D&O provides coverage for wrongful acts such as neglect or breach of duty. People who give advice and/or make educated recommendations also benefit from Errors and Omissions (E&O) coverage, as they are at risk of being sued for giving improper or misleading advice.

Examples  of types of potential losses may include:

o Wrongful dismissal

o Slander

o Fraud

o Misuse of funds

o Failure to comply with laws

o Errors in Judgement

o Breach of fiduciary duty resulting in financial loss or bankruptcy: (legal obligation of one party to act in the best interest of another party)

 

o Failure of the Organization to submit taxes and or deductions.

 

 

Examples of what a D&O policy may cover (for members and their spouses):

o Legal fees

o Defense costs

o Settlements

o Loss Mitigation (prevention of further loss)

 

Examples of who might sue you:

o Employees

o Vendors

o Competitors

o Investors

o Customers

o Donors

 

Examples of what is not covered:

o   Crime/Illegal acts

Examples of D&O Claims:

o   Donors; A Board of Directors gets sued by donors alleging misrepresentation of the financial status of the organization.

o   Employees: may allege discrimination, harassment, wrongful termination, hostile work environment, loss of reputation due to the action of one or more Board Members.

o   Board Members; may sue another member or the Board as a whole, alleging discrimination, mismanagement.

o   Violation of laws or by-laws; The Board may get sued for violating laws they were responsible to be aware of.

o   Breach of Fiduciary Duty: A Board Member makes a deal with an unqualified contractor on behalf of the company or organization for his own personal gain because the contractor is his friend/personal kick-back.

o   Loss Mitigation; in the event of financial mismanagement, an independent Accountant may need to be called in to review the company books.

Any business should consider having D&O coverage to protect their personal interests, particularly as our society becomes more litigious.  Your company does not have to be a multi-million dollar company  to be sued for mismanagement – it could happen to anyone.  Even though there may be no merit in the alleged wrong-doing of the organization the defence costs can be enormous and have a severe or even devastating impact on your organization.

 

Do you want your personal finances at risk of a mistake in decision making?

the mistake can be any director or officer on the board, not just yours! give us a call today at 1-888-245-4741 if you'd like to discuss. 

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