Understanding Executive Risk
D&O For Private Companies
Many private organizations don't believe they need D&O insurance. This can be dangerous thinking, as just one D&O claim can drain the personal assets of a company's leadership team. With today's emphasis on corporate transparency and accountability, an organization's directors and officers face a countless number of exposures. Regardless of your company's size or mission, the legal costs associated with a lawsuit can be crippling for both the organization and your directors and officers.
Many wrongfully assume that directors and officers (D&O) insurance is only necessary for publicly traded companies. Many do not realize that privately held organizations can just as easily fall victim to lawsuits that can impact the company, its officers and board, making D&O insurance a critical risk transfer mechanism.
The proper D&O insurance policy can provide the following benefits to privately held companies:
- Legal cost reimbursement. In the event of a claim, D&O policies can provide legal cost coverage for a variety of claims. Specifically, D&O insurance can provide reimbursement to leaders of private companies following allegations of financial mismanagement, wrongful acts, negligence and errors in judgement. It is critical that private companies arm themselves with the right policy since D&O lawsuits can occur without warning and easily reach and exceed six figures.
- Peace of mind. D&O claims can come from a variety of sources, including employees, clients, contractors and government bodies. For private companies, claims from creditors and competitors are particularly common. D&O insurance ensures that private company leaders are protected regardless of where claims originate, providing timely and effective coverage.
- An improved ability to attract new directors. Simply put, having a strong D&O policy in place makes board seats more attractive. This is because purchasing insurance shows prospective leaders that you take D&O risks seriously and are prepared to protect them in the event of a claim.
- Coverage for regulatory exposures. Regulatory agencies are increasing their scrutiny of private companies, making D&O insurance all the more important. Paying the cost of an attorney to defend a director or officer against a government enforcement action is expensive and private company D&O insurance policies can help with these types of expenses.