This is my fifth and final column in a series about employee-related business coverages. So, I don’t want to forget upper management. Officers in a company are employees too, and they deserve protection just like everyone else.
Why do companies purchase Directors and Officers (D&O) insurance?
It’s not just large companies and non-profits that buy D&O coverage. More and more, small and medium sized corporations are looking at purchasing D&O.
Senior management can be a target when something goes wrong in a company. As many business owners know, they and their management team can be sued personally as well as professionally.
Our legal system, and our neighbors, understand that there are times when it’s not OK to hide behind a corporate wall. You as a board member or an officer of the company have a personal duty of care.
If someone wants their pound of flesh because they were harmed by a business, they may want some additional ounces from the actual persons behind the corporate name.
When a person sues the company, there is liability insurance. When they sue you as an officer of the company... there’s D&O.
What’s covered and not covered by D&O?
Directors and officers insurance doesn’t cover fraud and criminal acts. It also doesn’t cover personal profiting from shady dealings.
In short, D&O isn’t a get-out-of-jail-free card for bad character.
However, beyond these and some other common-sense exclusions, D&O offers broad protection when directors and officers are sued for not meeting their duty of care.
Carl and the caustic chemicals
Carl was senior Vice President of operations at Acme Manufacturing. He had a reputation for putting health and safety first in the workplace.
He had started at the bottom over 30 years ago, and now he was an officer and board member at Acme. But he never forgot how dangerous the work could be. He made sure employee safety came first.
Carl had to sign off on many decisions each month at the plant. He did this as carefully as he could.
One of those decisions was to sign off on a switch to a new chemical used in the manufacturing process.
He signed off without doing his usual personal research on the chemical. He was pressed for time, and after all, that’s what his managers were supposed to do. They researched it and promised him it was safe.
But the new chemical wasn’t safe. It was more caustic than the previous chemical they had used.
New equipment and new protective gear should have been used. It wasn’t. By the time everyone realized that, it was too late.
People got sick. Very sick.
The company was sued. And so was Carl. He was personally named in the lawsuit. Employees were angry. Of all people, they should have been able to trust Carl to keep them safe.
Carl made a mistake. A mistake anyone could have made. But because of his position in the company, he had an extra duty of care. His was the final desk on which these decisions were made.
Carl needed an attorney. He also needed insurance to settle the large claim against him personally. Carl needed D&O insurance.
Don’t assume the corporate wall will always protect you. If you are an officer or board member of a corporation, large or small, consider D&O coverage.
As always, if you don’t have a local insurance agent, please feel free to contact me with any questions.