Insuring directors and officers: privately held companies also have liability risks.
Author | Treco, Frank "Skip" |
Position | ADVICE: INSURANCE |
IT SEEMS ALMOST EVERY insurance buyer knows directors & officers liability insurance (D&O) is perhaps the single most important coverage in a public company's insurance portfolio as settlement values continue to reach astronomical levels.
A private company is thought to be a much safer organization without the risk of stock drops and shareholder litigation. However, the misconception that private companies do not need D&O has left many private companies exposed to unexpected losses. Whether an individual is serving as a director or officer at a private company or a public company, they owe their company the same duties of care, obedience and loyalty. When allegations arise that one of these duties has been breached, the individual's personal assets are at stake.
Excluding public shareholders, private and public companies share many of the same sources of claims. Employees serve as the largest source of claims against private companies (37 percent) according to a recent Towers Perrin D&O Liability Survey. Claims brought by employees against directors and officers alleging wrongful termination, harassment, discrimination and other employment related issues continue to be a problem for companies of all sizes.
Additionally, claims brought by the government alleging anti-trust, fraud, and civil rights violations are also a risk shared by both public and private companies. Creditors may allege violations of loan covenants and a company's own clients can bring suit alleging deceptive trade practices or other complaints concerning restraint of trade. Whether the allegations have merit or not, the company is forced to pay defense expenses...
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