By Louis Blangiardo

It is no longer only public companies who have the need for D&O coverage anymore. With the cost and frequency of litigations rising, and the uncertainty of the world, private companies are also facing increased litigation as a result of the actions taken by management. While some claims may be frivolous, the cost to the business to defend both the company and the management team can be exorbitant. While businesses begin to open their offices and employees begin to physically return to work, management is facing tough decisions on how to “get back to normal” while keeping both employees and customers safe. Diving a little deeper into this coverage helps us understand how D&O insurance can help protect a business and management.

  • What does D&O insurance cover?
    • D&O Insurance (directors and officers liability insurance) is designed to provide coverage for the board members (officers) of an entity and their spouses, from allegations of negligence and mismanagement
      • D&O insurance has expanded coverage over the years to include additional business entities such as: for profit, Not-For-Profit, volunteer, religious, etc; This coverage can protect the entity and its assets.
      • It is common to think of D&O Insurance as “Management Liability Error’s & Omissions” to cover decisions made by management
  • Who files the claims? Claims are filed against a business in 2 ways:
    • Claims are typically filed by shareholders or employees
    • Claims can also be asserted by third parties by entities such as corporation's creditors, suppliers, customers, or governmental entities
  • Common claim filings include:
    • Breach of Fiduciary Duty
      • Within sectors such as travel, leisure, hospitality and traditional retail under enormous pressure, pay-out areas are likely to grow1
    • Errors in Judgement2
  • Negligence of Duty
  • Insurers also say they’ve observed a surge in securities class-action litigation arising from other causes, including:
    • Cybersecurity breaches and failures of corporate culture to respond in a necessary and timely fashion
    • Claims arising over company responses to the pandemic, including misleading Covid-linked disclosures and government investigations into corporate applications for pandemic relief.3 

According to Fitch Ratings: Record (increased) premiums haven’t been enough to reverse U.S. directors and officers (D&O) insurers’ underwriting losses, and the sector will still lose money in the near term as a result.

It is more important now than ever to talk to a trusted advisor regarding D&O coverage and to ensure your business can get back to business in a safe, secure and protected way.

Contact LG Planning Group for a free D&O Insurance quote.

1 https://www.gfmag.com/magazine/october-2020/radical-changes-insurance-coverage

2 5 Common Sources of D&O Liability (marshallsterling.com)

3 https://www.gfmag.com/magazine/october-2020/radical-changes-insurance-coverage

4 https://www.insurancejournal.com/news/national/2021/04/29/612099.htm