FRIDAY, FEBRUARY 26, 2021
Businesses want to believe that their directors, officers and other company executives are the best and brightest representatives of their interests. That’s why those who take these roles are often subject to significant vetting and oversight throughout the hiring process.
Still, no matter how conscientiously a company leader tries to do their job, there is a chance that someone might allege that they were harmed by this person’s actions. Unfortunately, there are always going to be cases of bad actors slipping through the cracks, too. All in all, no business is immune to liability claims being levied against company principals.
Luckily, a quality directors & officers (D&O) insurance policy can protect both the business and company leaders in case they face challenges from upset third parties. Since lawsuits concerning officers and directors are more common than you may think, it’s important to know some of the common situations where claims might arise.
Workforce Mistreatment
When an employee feels that their rights or personal security has been violated, they are apt to sue the business. Claims of discrimination, sexual harassment, breach of contract and other matters of negligence might lead to these lawsuits.
Failure to Adhere to Company Bylaws
Both company executives and any requisite boards are required to follow rules set by both the company and local law. Those that fail to do so leave themselves open to both internal and external lawsuits. Challenges that might lead to these claims include miscounting votes, improperly removing board members and more.
Defamation
Should an employee, board member, competitor or other party feel that they have been targeted unfairly by a company principal, they might initiate legal action against that party. D&O insurance can help the party that faces the accusation protect themselves, personally, from the ramifications.
Mismanagement and Theft
A company director could be accused of mismanagement, breach of fiduciary duty, theft, or misrepresentation of company funds by board members, creditors, investors, employees or the public. This could have far-reaching ramifications, not just for the accused but also the accusers.
Why You Need D&O Insurance
When a company principal faces a challenge like one of those above, then they are often the personal target of lawsuits, alongside the business as a whole. Therefore, when someone is named individually in a lawsuit, it is their personal assets that could come under threat from the court. D&O insurance is there to help the affected parties protect themselves.
As a result, both the business and the individual will remain protected in the event of these challenges. Keep in mind, however, that if an allegation is intentional or criminal, D&O policies will still deny coverage to those affected. It’s imperative, therefore, to continue to enforce the strongest performance and compliance regulations for all company directors.
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