Directors Liability Insurance for Much-Needed Protection

There is very little that directors of an organization can do to diminish the complexity of the business model that makes up their duties, as well as the legal and regulatory environment in which they constantly operate. The fact is, directors often find themselves working in an extremely difficult environment. Many of the fundamental principles governing their conduct constantly come under increasing judicial and regulatory scrutiny.

One serious concern is the legal ramifications when a lawsuit develops questioning their use of power within their position. Fortunately, a great deal can be done to protect the personal assets of directors. Directors liability insurance, or directors and officers (D&O) insurance protects against legal claims for wrongful acts performed by corporate directors or officers as part of their corporate duties.

Types of claims associated with this position

Wrongful acts include omissions, errors, misleading statements, misstatements, neglect or breach of duty. Beneficiaries are generally the directors, officers or, in some cases, the corporation. Shareholder groups have only added to the problem by pressuring corporate management to make dramatic changes along with what they feel are improvements in order to remain economically competitive in the complex world markets of today.

While there may be no single solution for protecting directors from liability issues, directors liability insurance can be an effective tool in mitigating a firm’s overall exposure. Many agencies are available to provide D&O insurance designed to protect a director or officer of a firm for liability due to breaches of duty resulting from any of the aforementioned accusations.

Directors coverage is typically underwritten on a one-year basis for a single aggregate limit of liability. Most corporations will purchase entity coverage in one form or another, or have a predetermined allocation for securities law claims as a means of avoiding much of the traditional allocation of loss that normally occurred under previous D&O policies.

It’s a sad fact that allocation can often result in disputes between D&O underwriters and policyholders as to how certain elements of a loss, for example, uncovered policies or wrongful acts, should affect the ultimate amount of insurance recovery.

While there is little directors can do to diminish the complexity of the business, legal and regulatory environment in which they operate, a great deal can, and should be done to protect the personal assets of directors through a combination of strong corporate governance, broad corporate indemnification, and implementation of a risk transfer program that includes a high quality directors liability insurance program.

 

 

photo credit: What is this? (license)
Please follow and like us:
error
Bookmark the permalink.