Directors and Officers liability insurance (D&O) is designed to cover corporate activities. Both the corporation and the directors and officers who direct it can be charged with liability for an ever-increasing number of actions and inactions. However, in some cases, where corporate interests may clash with those of the individuals responsible for managing its affairs, the coverage isn't always the same.
While an indemnity policy protects the corporation, a D&O policy covers the individual acts of directors and officers. It is common for the coverage to be tied to the same events, but if the corporation is injured, it's covered solely by the indemnity policy.
There are instances where the two types of coverage may be at odds with one another. For example, if an officer is charged with fraud, the defenses against coverage under a D&O policy increase while defenses against the corporation's claim under an indemnity policy decrease.
In addition, a "company" can include non-profit organizations, charitable trusts, and civic associations. The one common thread tying them together is the concept of a "duty" owed by an officer or director to its constituents such as shareholders, employees and the corporation itself.
D&O liability came about as a solution to such matters as breaches of fiduciary duty and good faith that were beyond the common law courts. This helps explain why the legal structures governing the conduct of these individuals are often vague and subject to differing interpretations. It may also explain why the area is such a fertile field for litigators. Anyone suffering any sort of damages, from a sharp drop in the share price or a wrongful termination, can scrutinize corporate activity in the light of hindsight and then accuse the manager of having breached a corporate duty.
An integral part of liability coverage
Many consider D&O coverage as an integral part of a very large field of liability. Originally it was a way to protect the officers and directors, as well as the corporate entity, and was mostly concerned with business litigation. Now, however, there are many different types of issues involved, including:
- Public policy concerns
- Fraud
- Trade secrets
- Unfair competition, and
- Employment practices
All of these issues require a need for coverage of a broader type. D&O policies don't cover criminal activities; they are concerned exclusively with civil remedies, mainly damages. Therefore the only criteria are in determining whether a director or an officer has breached one of his basic duties to the extent that the aggrieved party can recover.
No lack of risk in any business venture
Private company risks are less concerned with securities violations. Their main exposure is to employees, but any company that employs one or more individuals or deals with customers, clients, competitors, the government, or other third parties has a D&O exposure, making the need for directors and officers liability insurance all the more obvious.
James A. Laduke is an Insurance Agent for Axis Insurance which specializes in Errors and Omissions Insurance throughout the United States.
Article Source: http://EzineArticles.com/?expert=James_A_Laduke
Article Source: http://EzineArticles.com/7544695
No comments:
Post a Comment