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Should I Get Director and Officer Liability Insurance for my Corporation?

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Question: Should I Get Director and Officer Liability Insurance for my Corporation?

Director and Officer Liability Insurance is insurance designed to protect corporation directors and executives against being sued personally or having to pay personally for corporation actions. Almost every public company has D&O liability insurance, and many private companies and non-profit corporations also have this insurance.

Answer:

Director and Officer liability coverage is a must-have for corporations. Even a small private corporation can be subject to lawsuits, and your directors may require you to purchase this insurance to protect them from having their personal assets involved in costly and lengthy litigation against your company.

What Kinds of Claims Can Be Made Against A Company?

  • Claims against a public company for stock prices that are too low or that caused shareholders to lose money, or for alleged failure to maximize sale price of a corporation
  • Stockholders may also bring suit regarding board decisions affecting the share value of minority shareholders
  • Beach of fiduciary duty by failing to secure contracts or obtain appropriate legal documents on transactions
  • Lawsuits from employees alleging failure to enforce provisions of state, local, or federal employment laws
  • Lawsuits by employees for wrongful termination, harassment, discrimination, and a host of other employment law violations against one employee or a class of employees
  • Governmental agencies may bring suit with allegations of environmental contamination, tax deficiencies of the corporation, or health, safety or welfare issues
  • Regulatory agencies may bring claims against the corporation and its directors and executives for unfair trade practices; trademark, patent, or copyright violations or similar issues.
In each of these cases, a lawsuit against the corporation may also include separate suits against directors and officers. Having a D&O Liability policy can help protect officers and directors from being dragged into these lawsuits.

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