While running a business is lucrative, it isn’t smooth sailing. A business owner has a lot to deal with, from managing finances to maintaining quality customer relationships. Executive leaders, such as directors and officers, assist business owners in all these tasks.
Of course, a great deal of responsibilities lie on the shoulders of directors and officers. That means they have to make critical decisions to ensure the business runs smoothly and efficiently. All this exposes them to litigation.
What if one of your directors or officers gets sued? What would you do in such situations? On average, it takes between $54,000 and $91,000 to fight a business lawsuit. Of course, this will take a toll on your company’s finances and reputation.
However, a D&O insurance policy can safeguard you and your executive leaders from lawsuits. In this guide, we’ll discuss why D&O insurance is a must-have for every business.
Directors and Officers Insurance: A Quick Overview
Often abbreviated as D&O insurance, directors’ and officers’ insurance offers liability coverage for individuals serving as directors and officers of a company. This coverage protects directors and officers from personal losses in case they are sued as a result of a breach of fiduciary duties.
While small businesses think otherwise, a D&O insurance policy is necessary for all companies. That’s because every organization is vulnerable to D&O claims. Without a D&O insurance policy in place, your business could suffer a massive loss in fighting lawsuits.
Benefits of D&O Insurance Policy for Businesses
Whether a publicly traded company or a privately held organization, a D&O insurance policy offers the following benefits:
1. Legal Cost Reimbursement
As directors and officers of companies are responsible for making critical business decisions that affect finance, operations, and other aspects, they are exposed to a host of litigation risks.
In case a lawsuit is brought against them, a D&O insurance policy will cover the legal expenses associated with it. Oakwood D&O Insurance asserts that creditors, investors, shareholders, supervisory boards, banks, employers, vendors, and customers can file claims against directors and officers.
Lawsuits filed against executive leaders can range from major securities class action filed by the shareholders of the company to minor grievances brought by disgruntled employees. Either way, your D&O insurance policy will reimburse leaders accused of financial mismanagement, wrongful acts, negligence, and errors in judgment.
Private firms are also subject to governmental actions. Should you fail to comply with the workplace law, you will be faced with regulatory actions and fines. With a D&O insurance policy, you will also be able to deal with governmental enforcement action in the best possible manner.
A D&O insurance covers expenses of a government enforcement action brought against the management team or the company. The insurance provider will hire the best defense team for your lawsuit and cover all expenses related to it.
You can click here to learn more about D&O insurance for public and private companies.
2. Protection of Personal Assets of Directors and Officers
Many times, companies are unable to indemnify their executive leaders against claims of wrongful acts. This usually happens when businesses do not have sufficient funds, are insolvent, or criminal proceedings are initiated against their executive leaders.
When that happens, directors and officers are personally liable for legal expenses as well as settlements. This puts their personal assets at risk, as they have to dig through them to cover the expenses of lawyers.
Side A cover of a D&O insurance policy offers coverage to executive leaders for claims when companies are unable to pay or refuse to pay for indemnification. By covering everything from legal fees to settlement costs, D&O insurance offers a safety net to directors and officers.
3. Security in Bankruptcy
No company owner likes to think of going bankrupt, but some things are inevitable. Having a D&O insurance policy in place can provide companies with a degree of relief.
While D&O insurance doesn’t prevent bankruptcy, it provides a safety net by minimizing its legal and financial risks. Certain parties, such as employees and shareholders, may hold executive leaders and their decisions responsible for bankruptcy. Lawsuits may be filed against them, demanding they repay the company’s debts.
As companies won’t be able to repay executive leaders, they may find themselves in a tough spot in such situations. Nevertheless, a good D&O insurance policy will provide adequate protection to directors and officers. By paying for their legal representation during bankruptcy-related litigation, D&O insurance will safeguard their personal assets.
Insure Your Directors and Officers With a D&O Insurance Policy Today
Considering that no company is immune to litigations, D&O insurance has become a necessity for businesses of all sizes.
Besides ensuring the financial stability of a company, a D&O insurance policy protects the personal assets of directors and officers. This gives them the confidence and peace of mind needed to make decisions for the betterment of the company.
When purchasing a D&O insurance policy, make sure to assess your business needs. Thereafter, ask your insurance provider what’s covered and what’s not covered. Increase coverage if needed, or go ahead with the purchase if the policy meets your needs.
Before you make the purchase, don’t forget to check customer reviews of the insurance provider to see if they live up to their claims.
