The directors and CEOs of big business are always the ones thrust into the spotlight whenever something goes wrong. This is especially true for leaders of publicly traded companies, as their actions are monitored at all times by concerned shareholders. It’s a stressful role, one where small mistakes can lead to big issues, and that’s why many business leaders look to directors and officers liability insurance to cover them in difficult times.
Directors and officers liability insurance, which is also known simply as “D&O insurance”, is a type of insurance that provides cover to the directors and officers of a company. The extent of this cover will depend on the type of policy, which is something that can be discussed between the policyholder and the insurance broker, but typically it covers them for any negligence or errors that result in lawsuits being brought against them.
In the world of big business, the ones in control are forever straddling a line between success and disaster, because they are always one mistake or bad decision away from doing something that could damage their reputation and that of their company. They also repeatedly find themselves in the crosshairs of lawyers, either because they have been held responsible for an issue that their company caused, or because their negligence led to serious financial or bodily harm or was considered criminal.
The most common claims made against directors of public companies come from the shareholders, who hold them responsible for poor company performance or financial loss. A 2011 report found that nearly three-quarters of directors from publicly traded companies had claimed on their D&O insurance because of a shareholder lawsuit. The figure was less for private company directors at just 21%, but it still represents a large number of claimants, and if they didn’t have directors and officers liability insurance to turn to in their time of need then they may have struggled to resolve the situation.
We mentioned shareholder claims above, and for directors of publicly traded companies these are by far the biggest reason to acquire a D&O insurance policy. For directors of private companies the majority of claims stem from customers or competitors and typically involve suggestions that the director(s) have used deceptive practices or breached some element of consumer law.
A robust directors and officers liability insurance policy will cover all of these areas and more, essentially supporting the director whenever a lawsuit is brought against them concerning their role in the business. Unlike some other business insurance policies, D&O insurance may also cover costs during criminal investigations, including investigations by regulatory bodies.
Directors, CEOs, and other high-ranking officials within a business may benefit from directors and officers liability insurance. It is considered essential for directors of publicly traded businesses, as they have been placed firmly in the spotlight and as a result there may be a great threat of legal action from customers and competitors, as well as shareholders. But it’s also something to be considered for directors of medium to large private businesses.
Typically, businesses of this size will already have a liability insurance policy in place and this may cover them for any eventualities, but rarely will it cover them for lawsuits of a criminal nature and it may also not cover legal action from regulatory bodies.
If you’re not sure whether you need D&O insurance or not, feel free to discuss it with one of our insurance brokers. At KASE Insurance we work with companies big and small, private and public, across Canada, and provide some of the most comprehensive directors and officers liability insurance in Toronto. We’re always on hand to discuss any concerns you may have and can talk you through this particular type of insurance if needed.
At KASE Insurance we always put the customer first, offering an unmatched level of service to all clientele. We have some of the most comprehensive directors and officers liability insurance in Toronto and provide this to a multitude of customers. If you would like to join them, then contact one of our specialists today and they can talk you through the process and help you to create a policy that works for you.
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