The laws regarding the liabilities for company directors can be complicated, making directors & officers insuranceimportant liability protection for a company's assets and the people who assist with executive decision-making. Spouses of corporate officers could also be held liable in a situation where allegations or occurrences of wrongful acts took place while managing company decisions or operations. Insurance coverage provides the financial support to address legal fees, litigation costs, and settlements generally for both a company and the directors or officers.
What Are the Risks for Directors?
Given their position and influence in corporate operations, directors and officers could be held liable when their decisions cause financial harm to the company, when they commit a crime or other wrongful act, or when they act out of incentive for personal gain and create a detriment to the company. Activities that pose a liability include:
- Failing to disclose conflicts of interest (whether potential or existing)
- Mingling business and personal assets or funds
- Breaching duties of care or loyalty to the company
- Misappropriating a corporate asset for another business or their personal benefit or use
What Does Directors and Officers Insurance Not Cover?
Not all actions taken by directors and officers are included in D&O insurance coverage. Knowing the exclusions prevents a serious mistake of thinking your company and its officers are protected and realizing later that no such coverage existed. Policy exclusions are the events or situations where the insurance provider will not pay for claims. Coverages differ according to insurer and policy, though these are some of the more common exclusions.
- Lawsuits filed between insureds at the same company (directors or officers suing one another)
- Instances of shareholder derivative action
- Losses related to antitrust laws or involvement
- Prior incident or claims omitted during policy application
- Criminal or fraudulent actions
What Are Ways to Reduce Liability Risks?
The complex risks of directors and officers usually lead to sticker shock when shopping for a D&O insurance quote. Risk management strategies help reduce exposures, potentially lowering the cost of coverage premiums. Reduce liabilities by implementing compliance monitoring systems for legal concern issues, establishing a corporate reporting and information system, and employing third-party agencies to oversee investigations of fraud claims or allegations of wrongdoing.
To secure a more favorable position during a legal action, the company should monitor directors and officers acting in good faith based on the experience, knowledge, and skill maintained in a particular area. Directors must do everything possible to manage company debts, clearly communicate with shareholders or company creditors, rely on professional advice, and always act in the company's best interest over personal impact.
Carrying directors and officer's liability reduces the risk of both a company and its officers from financial devastation in response to litigation defense or court awards. Directors and officers can also take out a personal coverage policy to address any gaps in the company's provision of coverage.
About Axis Insurance Services, LLC
At Axis Insurance Services, LLC, we aim to help our customers identify their exposures and protect themselves. Founded in 1999, we offer insurance programs to a wide variety of professionals and industries including attorneys, real estate, healthcare, architects, and more, and also have a wholesale division. We pride ourselves on offering flexible insurance coverage tailored specifically to each customer’s needs. To learn more about our solutions, contact us at (877) 787-5258 to speak with one of our professionals.
