DIRECTORS AND OFFICERS LIABILITY INSURANCE

 

Directors and Officers Liability Insurance (D&O Insurance) is important for companies in both the public and private sectors. Public companies all need and have Directors and Officer Liability Insurance, but many private companies do not. Yet private companies are just as exposed to securities litigation as public companies when they have investors, including venture capital investors. D&O Insurance is necessary to protect the personal assets of the officers when these allegations happen. It covers the defense costs, settlements and judgments associated with these claims.

Why have Directors and Officers Liability Insurance?

You are a start-up firm you have or are looking for investors. You are out there every day and night working on your business and trying to sell it. You sell it to potential investors, you sell it to potential clients, you sell it to the media, and you sell it to whoever is in the elevator with you at that moment. Doing all this selling you might slip up, or you may have an investor that perceives something different from what you are doing.

You are a venture capitalist, if you have a problem with the management of the company or if they mismanage the company, and it goes under, you’re out your capital. With the insurance you can try to file suit.

Other venture capitalists invest money, and also make sure that they are named a director or officer of the corporation. Now this is the really tricky spot. You invest $100,000 in Company XYZ and are put on the board of directors. Company XYZ gets other investors and eventually they mismanage the venture into the ground and everyone is upset. XYZ never had money and now has less. But you, the venture capitalist, one of the directors of the XYZ Company does have money, has money to lose. Require the coverage. For more information on D&O Insurance and Venture Capital Read more here.

It’s relatively inexpensive in comparison to the coverage it is providing. As a small to midsized private company you present a much lower risk in the insurance company’s eyes compared to the publicly traded corporations they normally deal with.

Not all D&O policies are created alike. Have an expert like ALC Risk Solutions to read over the definition of “insured”; in example: does your policy include all past and future directors, officers, international functional equivalents, members of a board of manager, employees, and advisory committees? ALC Risk Solutions will review your needs such as a Spousal and Domestic Partner Liability. Why? A lot of new ventures are started with one spouse working a “real job” and the other playing with their new venture company. Make sure the “real worker” is protected financially as well. Making sure coverage is worldwide, if you’re a local entity that has no plans to branch out then maybe this isn’t a factor. However, in the age of globalization most companies are now global and should be reflected in your insurance. We will review the “insured vs. insured” exclusion language. Is your policy a “duty to defend” or “defense reimbursement”? Can you afford to front the bill and be reimbursed?

Read more about D&O for private companies here.

 

 

Does your company, organization or association have Directors and Officers Liability Insurance? Do you need D&O Insurance? Protect your assets, speak with an agent like ALC Risk Solutions, call 786-644-RISK (7475) or email acohn@alcrisk.com today.

 

The above is meant as general information. These descriptions do not refer to any specific contract of insurance and they do not modify any definitions expressly stated in any contracts of insurance. We encourage you to speak to your insurance representative and to read your policy contract to fully understand your coverages.