Private & Non Profit D&O (Directors & Officers)
Directors & Officers insurance is often overlooked by companies in the private sector, particularly from smaller and mid-sized companies. While non profits are generally more risk aware (due to an increase in claim frequency), their “for profit” counterparts generally operate under a belief that they are more insulated from litigation. Often this is a result of an unawareness that the courts are capable of piercing the corporate veil, able to pursue personal-accountability for corporate debts. Businesses may also operate under the false assumption that this risk is already mitigated through their general liability insurance. Private company executive risk and the potential for litigation is however very real and D&O liability serves as the last line of defense protecting your directors/officers assets. It is also often your only protection against regulatory actions and bankruptcy claims, and one of the few ways to afford your company some level of protection against reputational risk. Statistics compiled from Chubb and Towers Watson indicate that 27% of private companies have experienced a D&O related claim in the past 10 years (13% in the past 3 years) with an average cost of $700,000. Claims against private companies include:
- Regulatory & Administrative investigations, fines and penalties (requiring careful D&O coverage coordination)
- Employment related lawsuits: Trends include increased EEOC activity against background checks, new DOL overtime laws qualifying previously exempt employees and misuse of social media in the workplace
- Competitor and Anti-trust claims (including unfair competition)
- False & deceptive advertising claims
- FCPA (foreign corrupt practices act) related claims and fines
- Direct & derivative shareholder/investor suits
Considering that many of the above coverages can initially be carved out of a D&O policy (requiring negotiating & tailoring), highlights the importance of partnering with a knowledgeable broker - obtaining a strong, well aligned package will depend on their experience. Because litigation against small and mid sized companies is relatively quiet (with little media attention), there is often a large gap between a company’s perceived risk and their actual risk. It is important to understand how a D&O program works in order appreciate its value. D&O programs contain numerous coverage parts including EPLI (employment practice liability), Crime and Fiduciary Liability – for organizations already placing/considering one (or some) of these coverages, it is often cost advantageous to package them under a D&O policy to afford an additional layer of protection for the board-members. For companies active in (or planning) any of the following, the risk is multiplied, transitioning D&O insurance from a well advised recommendation to a requirement.
- Seeking Funding (through equity or debt)
- Approaching Venture Capital or Private Equity firms
- Future planned IPO's and/or M&A (mergers & acquisitions)
Professional & management liability insurance is complex and challenging - partnering with an experienced broker is critical. As a relationship driven boutique agency focusing on D&O, GB&A is particularly well aligned to meet the liability needs of (larger) small businesses, mid sized companies and non profits. While our passion for executive liability helps us address current trends/issues to provide value insight - our deep knowledge helps us apply that passion for the benefit of the companies we advise. Services include program/coverage audits, gap analysis and benchmarking when required.