The World of Directors & Officers Insurance
Over the past five to seven years, it has been one wild ride for corporations doing business across the United States. With the financial meltdown we had, which led to one of the worst downturns in history, with the real estate market crashing and two iconic car manufacturers declaring bankruptcy, to name a few. Never before have companies faced as many lawsuits as they have recently in comparison to the lawsuits they had to face in the previous fifty years.
With shareholders taking a more active role these days, no company should be without a Scottsdale Directors and Officers liability insurance policy. It just doesn’t make fiscal sense not to have this type of coverage. As we know, Directors and Officers are responsible for managing their corporations, and, in turn, may be held liable to a high risk of personal liability for such actions as costs for any settlements, judgments, and the defense costs that are associated with lawsuits and legal proceedings brought against them.
As we have seen, defense costs can easily run in the hundreds of thousands dollars quickly. As fiduciaries of the corporation, Directors and Officers have a duty to avoid conflicts of interest and to adhere to a conduct that stresses care and diligence in managing the company’s affairs. Elected by shareholders, corporate directors have a duty that the company is managed in such a way as to have the shareholders’ best interest. They are responsible for overseeing the company’s business plans and making sure that the officers execute that strategy.
With this arrangement, the directors serve as a link between the shareholders and management. Some of the supervising responsibilities the directors have are establishing major procedures and company policies, evaluating the performance of the management team, reviewing management’s performance, and financial condition.
As you can see, those in the role of either Director or Officer carry much responsibility; that’s why it is very important to secure not only the right coverage but the proper amount of coverage. One of the most common claims involving Directors and Officers is breaching their duty of loyalty to the very corporation they are supposed to serve. By becoming a Director, they commit their allegiance and further state that the interests of shareholders and the company come first to any interest of their own that they may have.
A few examples of how a director or officer may breach their responsibility is revealing insider information or trade secrets of the company to someone outside of the of the corporation, okaying loans from the company’s funds to directors or their affiliates at terms not given to anyone else, and receiving or giving the authorization on improper payments to gain an unfair advantage, to name a few.
Another area of concern for Directors and Officers are those that serve on the boards of Non-Profit organizations. Like their corporate counterparts, they also have a duty to protect the organization they serve, and, in some cases, can face criminal or civil liability for certain acts or omissions.
Here are two examples of a claim against directors of a non-profit: first, the directors allegedly gave the go ahead to attempt to influence the state legislature so that a bill could pass to benefit the organization, but at the same time could also put its tax-exempt status in jeopardy; and second, a director pledged the assets of a charitable trust to obtain a bank loan for his company. As you can see, there are many facets to understanding Directors and Officers Insurance and the experienced Scottsdale staff at PJO Insurance Brokerage can guide you through it.