A company’s directors and officers have a tough job. When making decisions, they have to consider the best interests of employees, customers and shareholders, while also keeping in mind corporate best practices. If they have limited information and a short amount of time to make those decisions, sometimes costly mistakes can happen and they can be held legally responsible for the repercussions of those mistakes.
To hire and retain talented directors and officers, companies want to give them the freedom to make corporate decisions without the fear of liability for losses stemming from those decisions. Directors & officers (D&O) insurance protects executives against the consequences of any alleged or actual “wrongful acts” they commit while performing regular supervisory duties. Without D&O coverage, executives’ personal assets are at risk in the event of a lawsuit.
A class action lawsuit was brought against a Canadian mining company and its board of directors, accusing them of allegedly misrepresenting the cost of construction on one of their mines. When the costs exceeded the initial prediction and were projected to keep increasing, share prices plunged. The suit was brought on behalf of U.S. and Canadian shareholders that had bought shares at the prices calculated after the construction costs were misrepresented. Defence costs reached about $7 million, which D&O insurance helped cover when the lawsuit was successfully defended.
Keep in mind that there are some limitations to D&O coverage. It does not cover cases in which fraudulent, criminal or intentional wrongful acts are committed, or when acts are committed for personal gain.
No matter the size of your company, costly mistakes made by directors and officers can happen, which is why it’s important to take steps to insure your executives against losses stemming from an incident. Contact The Hull Group today to learn about the D&O coverage solution that’s right for you.