Why Private Companies Should Consider Buying D&O Liability Coverage

Friday, May 1, 2009
Oftentimes directors and officers in small companies do not have the expertise to make decisions in the increasingly complex legal world in which we live.  In addition, plaintiffs’ attorneys often sue the directors and officers due to their concern that the company will not have the assets to satisfy any judgment.  The cost of defending such claims can be crippling to the company and the individuals.  For this and other reasons it is a good idea for private companies to obtain D&O Liability coverage:
  • Judgments can be financially crippling
  • Corporate indemnification may not be available
  • Adverse shareholders and other potential claimants may exist
  • Bad business decisions are likely to be more visible due to small business environment thus attracting the attention of shareholders, regulators and others
  • Business decisions made by D&O's can quickly impact the finances and operations of a company
  • D&O's work in demanding environments as they cover more corporate duties
  • Unique conflicts of interest may exist due to complexity of responsibilities
  • Companies will have a difficult time attracting qualified individuals to their Boards without D&O coverage.
What are the Sources of D&O Claims?
  • Merger / Acquisitions
  • Conflict of interest
  • Financial performance     
  • Bankruptcy
  • Executive compensation     
  • Inadequate / Inaccurate disclosure
  • Stock or other offerings     
  • Financial reporting
  • Customers, clients and consumer groups:
  • Extension, refusal of credit     
  • Restraint of trade
  • Debt collection     
  • Dishonesty
  • Deceptive trade practices     
  • Cost, quality of product or service
  • Contract dispute     
  • Lender liability
  • Other third party claims against Directors and Officers (including competitors)
  • Anti-trust     
  • Prospective company acquisition
  • Copyright / patent infringement     
  • Company defamation
  • Business interference     
  • Tax issues
  • Competitor disputes     
  • Regulatory / other government issues
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