5 sources of D&O liability for businesses

Businesses and organizations face many risks, some of them relating to the directors and officers who run things. There are numerous employment-related risks that the directors and officers face, and if they get accused of some sort of negligence or wrongdoing the resulting costs for the business (and the individuals themselves) can be very high. We’re going to explore five different potential sources of director’s and officers liability – and we’ll talk about getting the D&O liability insurance you need to protect your business.

5 sources of directors and officers liability.

1. Employees.

One potential source of directors and officers liability comes from your organization’s employees. (In fact, for nonprofits and private businesses this is the most common source of liability.) Should an employee feel they’ve been mistreated, they might tell management about their concerns. But if they feel that management has not been handling things well and addressing their concerns, they could seek legal action.

Some examples of employment practices claims are:

  • Wrongful dismissal
  • Discrimination
  • Breach of an employment contract
  • Not addressing safety concerns or health concerns

2. Government and regulatory authorities.

There are numerous government and regulatory authorities that oversee business and keep tabs on the environment in which organizations run. Their goal is to make sure that directors and officers conduct business in a way that is both lawful and fair. (For example, there is corporations law, securities law, consumer protection law, occupational health and safety law, taxation law, and environmental law.)

If these regulatory bodies find that wrongful conduct has happened, they could pursue legal action against the executives who were involved. And that could mean a lot of headache and trouble for a business or organization.

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3. Competitors.

So, the goal of most businesses is to grow. But this growth has to happen within the bounds of fair business practices. If some of your competitors feel that any dishonest or illegal actions have put them at a disadvantage, they could take legal action against you. (Again, leading to a big headache for you – and a very not-fun lawsuit.)

Some examples of this kind of claim include…

  • Intellectual property breaches
  • Misappropriation of trade secrets
  • Collusion
  • Anti-competitive behavior

Directors and officers can also be held liable for things that seem misleading or defamatory. So, that’s how your competitors can cause D&O liability for your business.

4. Creditors.

Of course, creditors are people who want money from you because, well, you owe them money. But creditors can also create D&O liability for your business. Because the management team of your business is the piece that’s responsible for monitoring finances and such, creditors may keep a close eye on the decisions that your directors and officers to see if any of them are personally responsible if the organization becomes unable to pay their debts.

For example, you could face allegations from your creditors of…

  • Breach of fiduciary duty
  • Breach of duty of due care
  • Negligence
  • Deliberate misconduct

So, that’s how your creditors can create directors and officers liability for your business. It’s important to make sure to protect your business from this kind of liability.

5. Shareholders.

Your shareholders have a financial investment in your business, of course, so naturally, they’ll want to know that the directors and officers are acting in the business’s best interest. If they feel that the directors and officers are not acting for the good of the business, they might bring a claim against them. So, there’s another potential D&O liability source.

How you can protect your business with D&O liability insurance.

As you can see, there a lot of potential D&O issues out there that could strike your business. A D&O liability insurance policy can help protect your business against these kinds of claims so that you can protect the financial well-being of your organization. Unlike general liability insurance, which protects against claims of bodily injury and property damage, D&O insurance can protect your business against “wrongful acts” of your directors, such as negligence, omission, an alleged error, misleading statements, or breach of duty.

D&O insurance policies can be complex, so it’s important to talk to a trustworthy insurance agent who’s experienced with this sort of coverage when you’re going about getting a policy. Basically, a D&O policy can provide defense costs and indemnity coverage to the entity listed in the policy. It can provide coverage for individual directors and officers, reimburse an organization for a contractual obligation to indemnify directors and officers that serve on the board, and protect the organization itself. And that’s why you may want to consider D&O insurance when you’re getting insurance for your business.

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If you need quotes for D&O insurance for your business, we can help. Our agents can help you get the insurance you need to protect your business from the risks you face. To get started with your quotes, fill out our online quote form or give us a call today.