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Private vs. Public
If you believe that just because an organization is privately
held, it doesn’t need D&O insurance...you’re wrong!
Directors and officers of privately held organizations face nearly
all of the same risks as those of publicly held organizations.
They owe the same duties to their shareholders, and even if they
are acting
on behalf of the organization, they can still be personally
liable for their acts. They are often at a higher risk due to the
fact that
privately held organizations donĂt have the same capital and resources
available to obtain complete and accurate information
prior to making decisions.
Having a General Liability policy may not be adequate enough coverage
either. There are several types of claims that can fall
through the cracks of a General Liability policy. In order for a
General Liability
to respond to a claim, there needs to be "property damage", "bodily
injury", "personal injury", or "advertising injury". Following is
an example of a situation where the general liability policy may
not respond.
Example: Corporation A hires an employee as an officer from its
competitor, Corporation B. Corporation B sues Corporation A and the
officer, alleging
that the officer revealed trade secrets involving a manufacturing
process. If the trade secrets had involved marketing information,
the general
liability policy would respond under "advertising injury". However,
a manufacturing process does not fall in to the same
category.
Another misconception is that the directors and officers of privately
held organizations will be reimbursed by the organization for any claims.
Some claims are not indemnifiable by the organization. For example,
the shareholders order a derivative action to force officers to replace
funds lost due to wrongful acts. If the organization reimbursed the
officer, the action is defeated. In addition, the organization may
be insolvent and unable to reimburse the director and officers.
Having a D&O policy in force can help alleviate these situations
and avoid financial disaster.
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