Directors and officers face quite a few exposures in their position with a company. Directors, often on the front lines when it comes to new hires, see the potential for employment practices litigation (EPL), which fortunately can be added coverage to most D&O policies, as part of their directors liability insurance policy. Claims over employment practices are among the most common lawsuits brought against a company’s management, from public, to private and nonprofit entities.
Most business owners assume that the chances are good that their business will experience a D&O related loss at one point or another due to the litigious nature of people in general. Some high profile companies say they have experienced a D&O lawsuit within the past five years, and the costs to settle and/or litigate those cases averaged close to $230,000, with some losses approaching $5 million.
D&O policies can be customized for the unique needs of the client
D&O coverage is generally for some fixed level of claims per year. For example, if a large claim is paid on behalf of one director, this can possibly leave other directors, officers, or the corporation itself, exposed for the remainder of the year.
Customers of private companies are among the leading plaintiffs in litigation against directors and officer of private companies. D&O suits also come about due to “employee piracy” issues. This occurs when a key employee leaves one company to start or join a competing firm and their previous employer files suit against the new firm amid claims of theft of intellectual property or customers, as well as other business information they feel was wrongly acquired.
A bankruptcy can be the cause of litigation against directors from creditors, lenders, customers, and investors. Even if a company doesn’t go bankrupt but needs to downsize, resulting in employee layoffs – this may prompt claims personally targeting directors, in addition to the business itself. Some employees may feel unfairly persecuted when the company they work for implements layoffs, which might result in their decision to sue. They may simply claim that they were let go due to issues of discrimination. Directors liability insurance, with provisions for EPL, is the solution to a growing problem.