Every business owner, particularly directors & owners, want to make the right decisions for their company, shareholders and clients. However, mistakes can happen. If they do, then the blame might fall squarely on company principals’ shoulders. That’s why many want to rely on the personal liability protection provided by directors & officers insurance (D&O insurance). This coverage is so important that, by having it, businesses might be able to improve their corporate reputation. Why is this?
One thing about D&O insurance is that it can provide a targeted benefit to the company’s movers and shakers. Therefore, it can help them feel more secure in their decision-making abilities. It can also help them understand that they will have personal protection available in case their mistakes cause bigger problems for the company.
D&O Insurance at a Glance
Within any business, there is usually someone at the top. This person’s decisions therefore can have expansive impacts on the company’s direction. As a result, the wrong choices could therefore trickle down and harm others. Those affected might hold these directors, CEOs, board members and other principals as personally responsible for their losses.
In these cases, a directors & officers policy might be able to step in. Most businesses carry what is called errors & omissions (E&O) insurance. E&O coverage applies in cases where a company’s decisions cause other parties a personal loss. D&O insurance is something of a more-specific type of this coverage.
D&O policies apply when a company principal receives personal criticism for their mistakes or decisions. It can extend targeted protection to these parties in case their personal security comes under fire. The coverage might apply to a director’s mistakes like:
- Breach of fiduciary duty
- Misrepresentation of company assets
- Misuse of company funds
- Failure to comply with workplace laws
To elaborate, a liability lawsuit might target the business and its directors separately. As a result, these suits could call the director’s personal security and assets into question. The director, and even their spouse and family, might face a personal financial struggle should these suits continue. Given that many such actions can become extremely costly, then it is always important that high-level decision makers have protection in place.
It might pay for settlements, judgements and legal costs that might arise from these actions. Coverage can even protect principal from all numbers of third-party actions, including those within their own companies. So, if employees were to sue owners because they deem the owners’ actions improper, then this coverage might help in part.
Keep in mind, however, that a D&O policy will not apply to all commercial liabilities. First and foremost, should principals commit illegal or criminal actions, then the policy will not apply. Furthermore, it will usually only apply to the professional services you render. Therefore, property damage or bodily injuries will usually not have coverage on this policy. A commercial general liability policy might provide this assistance, however.
Also, policies won’t apply to every action taken against you by employees. For hiring and retention mistakes, you might benefit from an EPLI policy. Workers’ compensation insurance will help cover employee injuries that they sustain on the job.
Using D&O Insurance to Attract Talent
One indirect, but important, benefit of a D&O policy is how it can help your business secure talent within the operation.
By offering company principals D&O insurance, you’ll provide them with an incentive that the company can support them in case problems arise. In other words, it can let those in charge know that they have help in case allegations about their conduct (true or not) arises. That can make them feel more secure in their ability to make decisions.
Not only can your company benefit by providing current principals with money, but also you might be able to use it to attract new talent. Many prospective hires, particularly those in high-level positions, like to see that a company carries D&O insurance. It can help them know that, should they accept a position, the company will have an interest in their protection. Therefore, by saying you have coverage, you can often open up an important negotiating avenue with the highest tiers of talent.
Your Own D&O Benefits
The same principle can apply for you, too, if you are the business owner. By having a D&O insurance policy in place, you can have more security in case problems arise. Legal actions against you could not only target your business assets, but also your personal ones. You wouldn’t want to put your savings, home or other income on the line because a problem arises in your business services. Therefore, this coverage can help you as much as it might help any principal you plan to hire.
In the end a D&O policy can greatly benefit those in decision-making positions. Whether this is you or others in your company, many people can benefit from their own protection. The policy can provide it, often in very specific ways. Contact us for a Florida business owners policy quote.