To an established businessperson, director and officer’s insurance may seem like just another item on the liability checklist. If the company has a policy, you may feel protected. However, that may or may not be true. The personal and professional consequences of not examining such an insurance policy properly and finding something amiss when you need it most cannot be overstated. Should a civil lawsuit, government investigation, administrative action or even criminal proceedings launch against you, this coverage could be the only thing that stands between you and literal ruin.
Serving a company, whether public, private or non-profit, comes with risks. It may seem unlikely, but the day may come when you will be exceptionally glad to have prepared for the possibility of legal action against you.
7 tips for directors and officers
- Director and officer (D&O) actions often happen in hard times. Be prepared. If your company is going through financial hardship, bankruptcy or some other disaster, know that the shareholders, board or even creditors will be scrutinizing not only how you respond but also everything you’ve done up to this point. If there is anything you can do to mitigate a situation, seriously consider taking that course of action as a precautionary measure.
- Review your policy with an experienced attorney at the time the company purchases it—or, even better, before. Every D&O policy is different. It’s important that you understand the nuances of the one you have. Look at the provisions and discuss whether there are potential gaps in the liability coverage. Make sure that the coverage you have will protect you.
- If you believe a potential claim may be brewing, make sure you understand the provisions governing notice and when you need to give notice to assure coverage.
- Understand the clauses that can eliminate coverage from the outset. Before the policy is bound or even after the policy is bound but a claim has not arisen, these exclusions or limitations can sometimes be negotiated with the insurance company and either modified or eliminated. Even if not, such exclusions or limitations may leave a sufficient gap in coverage that getting a different policy may be advisable.
- If there are gaps in your company’s D&O insurance, it may be possible to fill them with alternate insurance policies. Explore the coverage of additional protections through other liability policies, such as a general liability policy, an environmental policy or a fiduciary liability policy. Check the definitions of an insured. What does the full picture of your insurance coverage look like?
- If an insurance company declines to provide you a defense or provides a defense subject to a reservation of rights, contact an attorney to make sure you fully understand your options.
As a businessperson, you are well-acquainted with risk, responsibility and liability. Wise counsel can help you protect yourself not only when disaster strikes but also mitigate the effects of risk factors on your life and career overall.
