The Most Common D&O Risks to Avoid

When most people hear of this for the first time, they might wonder, what is a D&O policy? After all, it’s not very often that you come across ads for this type of insurance. A directors and officers (D&O) insurance policy provides protection for executives to shield them from liabilities that might arise as a result of key decisions they made for an organization.

Why Is D&O Insurance Important?

Executives often face difficult decisions that offer no win-win solution. In fact, decisions to keep the company afloat might directly impact vendors, contractors and other key stakeholders for the worst. When this happens, the affected parties might decide to bring a suit against the executive or the company.

D&O coverage works similarly to general business liability insurance by covering the costs associated with these cases. Naturally, directors and officers insurance cost varies based on industry, business size and several other factors. However, $1 million in coverage generally costs from $3,000 to $10,000 each year.

What Are Common D&O Risks?

Even well-meaning business executives who act fairly and with integrity might face accusations that lead to litigation. You can find some of the most common risks that the policy might assist with below:

  • Theft of Intellectual Property: Sometimes co-founders experience a major falling out during the start of a project. When one person then leaves to create a rival firm, the former business partner might sue for any duplications of the original idea in the new project.
  • Failure To Abide By Employment Laws: There are federal, state and even local laws that companies need to follow when it comes to employer-employee relationships. This might include laws related to termination, discrimination, work hours, pay and how to classify workers.
  • Failure To Follow In-House Policies: Companies might have their own internal agreements about how to proceed with specific things not covered by employment law. Often, these agreements form part of the contract with employees, vendors and investors. Breaking these agreements might lead to lawsuits.
  • Breach of Fiduciary Duty: Companies and their workers might face litigation for failing to protect the affected parties’ financial interests. For example, investors might sue a company for failing to take timely action against a contractor producing poor work because of personal interests or connections.
  • Misrepresentation: Several potential instances exist where one company might misrepresent assets, debts, capabilities, qualifications and even insurance coverage to get hired for a contract. If problems arise from this misrepresentation, the affected parties might sue.

How To Avoid These D&O Risks

Knowing the law and ensuring all people in the organization who need to enforce it do too represents a good first step. Putting employment policies in place to eliminate gray lines left by loopholes in employment law can also prove helpful. Finally, executives should attempt to address all grievances that arise in-house before they spiral into courtroom battles or large settlements.

About Haughn & Associates

Founded by Michael Haughn in 1986, Haughn & Associates is a full-service, family-owned, independent insurance agency based out of Dublin, Ohio. H&A strives to provide the best possible price and unique insurance solutions across a myriad of industries, including construction, IT, Habitation & Commercial Property, Agriculture, and Engineering.

Devoted to providing the best of business insurance, life and disability insurance, personal insurance, employee benefits, and bonds, H&A is proof that success lies in long-standing client relations and satisfaction. To learn more about how H&A can be of service to you, contact us at (877) 802-2281