If you have ever wondered “do I need directors and officers insurance”, this blog post is for you. We looked around the internet and found it lacking a common-sense explanation. So here at Golden Benchmark, we decided to write one of our own.
Directors and Officers is a special type of insurance that sits on top of existing liability policies. D&O guards against litigation targeting the directors and officers of a company. Not every company needs Directors and Officers. Some companies are required to carry D&O by their investors. Some companies believe protecting their directors and officers is a prudent business practice.
D&O is not a simple policy and has many moving pieces. Each carrier approaches D&O differently. Directors and Officers is exactly the kind of insurance that requires a skilled and able broker to effectively draw.
Here are some claims scenarios regarding Directors and Officers:
Interference with a Contract
SITUATION: A competitor sued the insured for conspiracy to divert a potential contract from their company. Allegations included interference with a contract and a knowing participation in a breach of duty. The plaintiff sought direct and consequential damages, including lost profits, punitive damages and attorney’s fees.
RESOLUTION: The case was resolved after mediation. Defense costs incurred to defend the claim amounted to over $193,000.
Breach of Fiduciary Duty Owed to the Company
SITUATION: The bankruptcy trustee brought charges against the insured’s former directors and officers, claiming they had devised a strategy to disguise the insured’s precarious financial position. The insured allegedly participated in a transaction allegedly causing the overstatement of stockholders equity.
RESOLUTION: The parties successfully mediated the case. Approximately $225,000 was paid to defend the claim.
Misrepresentation and fraud
SITUATION: An investor sued the insured’s chairman and director, asserting that he was misled regarding how his investor would be used. Allegedly he was told his $525,000 investment would be used for capital improvements, but his investment was instead used to pay operational expenses and existing debt. The investor sought recession and damages based upon the alleged misrepresentations.
RESOLUTION: The case was resolved after mediation for $285,000 on behalf of the insured. Approximately $262,500 was paid in defending the claim.