What is Directors & Officers Liability Insurance, and Why Private Companies in Kansas and Missouri Need It.
By Dan Bukaty
What is Directors & Officers Liability Insurance and What Does it Cover?
- What does Directors & Officers liability insurance cover?
- How much does Directors & Officers liability insurance cost?
- Does an LLC need Directors & Officer insurance?
- What is the difference between Professional and D&O insurance?
- Do I need Directors & Officers liability insurance?
- Is Directors & Officers insurance the same of professional liability?
- Directors & Officers liability insurance claims examples.
- Why do nonprofits need Directors and Officers insurance?
Directors and Officers (D&O) liability insurance provides defense and settlement costs for claims made against the insured(s) by those who believe they suffered economic loss or harm due to the decisions and actions of the insured(s).
Why is Directors & Officers Insurance Necessary?
For a variety of complex reasons, public and private companies can face lawsuits from third parties who make claims against the company's management. Regardless of the veracity of the allegations, defendants can face crippling legal costs. Appeals and counterclaims add to the expense burden. The large amounts often awarded in today's out-of-court settlements and jury awards can threaten a company's financial viability. When lawsuits name defendants personally, the company may not have the resources to reimburse the individual for their defense or settlement costs. The distraction and potential divisiveness within management can affect the company's ability to focus and move forward. Directors & Officers liability insurance allows companies to transfer this unknown risk to the coverage guarantees of the policy.
How Does Directors & Officers Insurance Respond to Covered Claims?
A properly constructed D&O liability insurance policy provides coverage for the defense and settlement costs associated with covered claims. In addition, the insurance carrier offers guidance to the defendant to help determine if a voluntary settlement is more pragmatic than protracted litigation. The policy provides coverage for agreed-upon settlements to avoid the public trial spotlight. When an insured is found legally liable, coverage is available for jury awards. (All Directors & Officers coverages, including defense and settlement costs, are subject to policy limitations, exclusions, and deductibles.)
What Types of Claims are Covered by a Directors & Officers Policy?
· Investor and lender suits over company mismanagement.
· Contract disputes, including breach and interference.
· Fraud, misrepresentation, or deceptive inducement.
· Misuse of company assets, including self-dealing and conflicts of interest.
· Dereliction or breach of duty, errors in judgments, and wrongful acts.
· Failure to adhere to laws, regulations or company bylaws
· Defamation, discrimination, libel, retaliation, and slander.
· Unfair or deceptive trade practices.
· Negligent hiring and supervision.
Who is an "Insured" Under a Directors & Officers Insurance Policy?
D&O liability insurance is not only intended for public companies with a corporate board of directors, but also for owners of privately held businesses, their spouses, managers, employees, and members of their advisory committee. A properly constructed D&O policy provides coverage for all these individuals, thereby allowing the company to attract and retain effective leaders.
Who Can Bring a Directors & Officers Claim?
Claimants can include shareholders, banks, creditors, employees, labor unions, government agencies, customers, vendors, competitors, community activists, and adjacent property owners. Potential claims come from almost anyone who believes they suffered economic loss or harm because of their reliance on the decisions, actions, or information provided by the executives or authorized employees acting on the company's behalf.
Directors & Officers Liability Claims Examples
Interference With a Contract
A competitor sued the insured for conspiracy to divert a potential contract from their company. Allegations included interference with a contract and a knowing participation in a breach of duty. The plaintiff sought direct and consequential damages, including lost profits, punitive damages, and attorney's fees. The case was resolved after mediation. Defense costs incurred to defend the claim amounted to over $193,000.
Termination After Work Comp Claim
An employer terminated 15 employees as part of a broader workforce realignment. One of those employees had been off work due to a work-related injury. The employee filed a lawsuit alleging retaliation for the termination and libel for contents within an internal company email questioning the circumstances of the injury. The case was eventually dismissed, but defense costs exceeded $175,000.
Romance Brings Lawsuit
A female sales representative became romantically involved with a customer's employee. When the relationship was discovered, the customer reported the matter to the sales representative's employer. She was immediately terminated. In her lawsuit against her former customer, she alleged tortious interference, slander, and negligent supervision of an employee. The case was resolved after mediation for $210,000.
Canceled Contract Leads to Dispute
A manufacturer canceled a materials contract with a supplier after identifying a less-expensive source for the materials. The supplier filed suit for breach of contract. The case was settled after a jury trial for $750,000, including defense costs.
Friendship Leads to Conflict of Interest
The president of a small company contracted with a former fraternity brother for accounting services. Irregularities in the company's finances led to a lawsuit from a minority shareholder alleging self-dealing and breach of duty. The lawsuit lasted over two years. It settled days before a trial was set to begin for $15,000. Defense costs exceeded $125,000.
Take Action Today to Buy Directors & Officers Insurance
Every day, your company and its leaders are at risk from those who don't agree with your decisions and actions. Fear of personal liability can prevent top managerial talent from joining your organization. Even unfounded D&O liability claims can paralyze your company. Choose Directors & Officers liability insurance to protect your company and its leadership. Kansas & Missouri policyholders insured through Bukaty Property & Casualty Services have unlimited access to knowledgeable Directors & Officers liability professionals. We help our clients understand the risks they face, and we provide proven solutions that advance favorable outcomes. To learn more, email us at firstname.lastname@example.org.
Useful Links for Additional Information on Directors & Officers Insurance
Directors & Officers Liability Insurance Overview
Directors & Officers Insurance - Everything You Need to Know
The counties and cities where we sell Directors & Officers Insurance in Kansas & Missouri:
Kansas Counties & Cities
- Douglas County: Baldwin City, Eudora, Lawrence, Lecompton.
- Franklin County: Lane, Ottawa, Pomona, Princeton, Rantoul, Richmond, Wellsville, Williamsburg.
- Jefferson County: McLouth, Meriden, Nortonville, Oskaloosa, Ozawkie, Perry, Valley Falls, Winchester.
- Johnson County: De Soto, Edgerton, Gardner, Leawood, Lenexa, Mission, New Century, Olathe, Overland Park, Prairie Village, Shawnee, Spring Hill, Stilwell.
- Leavenworth County: Basehor, Bonner Springs, De Soto, Easton, Kansas City, Lansing, Leavenworth, Linwood, Tonganoxie.
- Linn County: Blue Mound, La Cygne, Linn Valley, Mound City, Parker, Pleasanton, Prescott.
- Miami County: Fontana, Louisburg, Osawatomie, Paola, Spring Hill.
- Shawnee County: Auburn, Rossville, Silver Lake, Topeka, Willard.
- Wyandotte County: Bonner Springs, Edwardsville, Kansas City Kansas, Lake Quivira.
Missouri Counties & Cities
- Cass County: Archie, Belton, Cleveland, Creighton, Drexel, East Lynne, Freeman, Garden City, Harrisonville, Kansas City, Lake Annette, Lake Winnebago, Lee’s Summit, Peculiar, Pleasant Hill, Raymore, Strasburg.
- Clay County: Avondale, Birmingham, Claycomo, Ectonville, Excelsior Estates, Excelsior Springs, Gladstone, Glenaire, Holt, Kansas City, Kearney, Lawson, Liberty, Missouri City, Mosby, North Kansas City, Oaks, Oakview, Oakwood, Oakwood Park, Pleasant Valley, Prathersville, Randolph, Smithville, Sugar Creek.
- Jackson County: Blue Springs, Buckner, Grain Valley, Grandview, Greenwood, Independence, Kansas City, Lake Lotawana, Lake Tapawingo, Lee’s Summit, Levasy, Lone Jack, Oak Grove, Sugar Creek.
- Platte County: Camden Point, Dearborn, Edgerton, Houston Lake, Kansas City, Lake Waukomis, Northmoor, Parkville, Platte City, Platte Woods, Riverside, Smithville, Tracy, Weatherby Lake, Weston.