While some smaller companies have a misperception they haven’t a need for directors and officers insurance, most, if not all, larger publicly traded companies have coverage, with many opting for Axis Insurance, for their directors and officers. They realize the importance of providing this type of protection. In many instances, not ensuring board members could be a costly mistake, as directors and officers of private companies quite often become targets of litigation.
Shareholders or investors who suspect that some type of wrongdoing may have occurred might seek accountability, putting the blame squarely on the shoulders of a member of the board’s directors. In addition, competitors, customers, employees, or even government agencies can bring about similar claims, and the cost of defending such claims can be ruinous, particularly if a judgment or settlement amount reaches what may seem like an astronomical figure.
D&O liability coverage designed to protect directors and officers
Adding D&O to the insurance protections already in place in most businesses of this type creates a more suitable work environment. While private businesses may not trade company shares on a public exchange, they do have investors, who expect to turn a profit on the money they have invested.
For example, with a new business enterprise, much more difficult to get up and running, if investors suddenly lose their start-up funds they may seek recourse. This can result in allegations of misappropriation of funds being brought against the firm’s top executives.
Many private companies are already established. Investors expect that, over time, the business should succeed with the company going public. If this were the case, a D&O policy can protect the founding entrepreneurs against claims by shareholders and/or investors who make claims if, for instance, the sale price wasn’t up to expectations.
Directors and officers of private companies are often active, hands-on business executives, often very involved in their company’s business operations. Due to this fact, their actions, especially if things go sour, are more likely to be called into question. The concerns are valid, which is why securing directors and officers for private companies through an Axis Insurance broker is always the right choice for your organization.