Explanation of Coverage
Growing Needs and Exposures
With new laws and court decision more broadly defining the responsibilities of corporate executives, the number of personal liability suits — and the value of the settlements of these suits — is escalating every year. Even when executives win, they lose. Legal costs are escalating along with the settlements. Every Director, Trustee, and Officer of a company — public, private, or family-owned — is a potential target for significant financial loss.
Corporate Directors and Officers are being watched more closely than ever by stockholders and other interested parties. Wise management must protect its key executives against personal liability with effective insurance coverage when they act in the name of the company.
As a director or officer of “their” corporation, your stockholders watch every move you make. Some are convinced they could run the company better than you. Others don’t see you as a person; they see you as a target for a lawsuit.
Then there is the vast majority of stockholders. They simply want to make sure “their” corporation is being managed properly. It doesn’t matter how much (or how little) stock they own. Or how much they know about your company. They do know their rights. And they take those rights very seriously. So seriously in fact that, each year, more and more directors and officers face stockholders suits.
And that’s only part of the problem.
Other sources of possible liability lawsuits loom.
■Your competition: who can bring suit against you for allegedly unfair competition in the marketplace.
■Government authorities: such as The Securities & Exchange Commission and the Federal Trade Commission who can bring action against you.
Directors & Officers Liability insurance protects Directors or Officers against losses resulting from suits originating in any quarter brought against a Director or Officer for an allegedly “wrongful act.” Wrongful acts can include:
■Failure to stop action resulting in damage to the company
■Unwarranted dividend payments, salaries or compensations
■Failure to attend meeting of Directors or Officers
■Misuse of company funds
■Imprudent loans resulting in loss to the company
■Inefficient administration resulting in losses
■Misstatement of financial reports
■Exceeding authority granted by Charter or Bylaws
■Violation of covenants in loan agreement or indenture
■Failure to disclose promptly information relative to significant developments with respect to company
■Violation of any of the responsibilities, obligations or duties imposed upon fiduciaries by the employee retirement income security act of 1974 or amendments thereto.
■Breach of duty to minority stockholders
■Failure to honor employment contract
■Illegal payment to public official
■Manipulation of stock value
To be effective, today’s D&O liability insurance program must be broad in coverage and flexible enough to meet growing needs and exposures. Depending on the risk, special features can include:
■Continuity of coverage
■Severability of coverage with respect to unknowing Directors and Officers
■Outside Directorship coverage
■Automatic Coverage of Created or Acquired Subsidiaries