Lawsuits against private companies can have financial consequences for not only the corporate entity but also its directors and officers (D&O). D&O Liability Insurance protects these individuals from personal financial losses and legal expenses associated with claims made against them in their professional capacities.
Examining private company D&O claims examples can help you impress the importance of this coverage on your business clients.
Fiduciary Duty: A Key Concept in D&O Claims Examples
Fiduciary duty requires individuals in positions of trust and responsibility to act in a manner placing others’ interests above their own. In the D&O context, it obligates board members to act in the best interests of the company and its stakeholders.
Many, if not most, private company D&O claims examples involve an alleged breach of fiduciary duty in some way.
Discrimination Claims
Discrimination based on such factors as race, gender, or age undermines the principles of fairness and equality that serve the best interests of a company and its personnel.
In 2009, Allstate Insurance Company settled an age discrimination class lawsuit for $4.5 million. During a hiring moratorium, Allstate reorganized from using employee agents to independent contractors. The U.S. Equal Employment Opportunity Commission (EEOC) alleged this action disproportionately affected Allstate’s employees over age 40. More than 90% of agents subjected to the moratorium were at least that age.
In 2020, Porous Materials paid $93,000 to settle claims that it engaged in pervasive discrimination and harassment based on race, sex, and national origin. The EEOC claimed the company’s owner did nothing to stop a manager from “using racial slurs toward his employees, calling foreign workers ‘terrorists,’ telling immigrants to leave America, and making unwanted sexual advances toward female employees.”
Wage and Hour Violation Claims
Employers have a legal obligation to pay employees fairly and in accordance with labor laws. When they don’t, they fail to act in workers’ best interests, instead prioritizing their own financial gain.
In February 2023, the U.S. Department of Labor (DOL) obtained a consent judgment requiring Affectionate Home Health Care Services and its owners to pay $1,176,883 in back wages and liquidated damages to 398 home health care workers. The company had paid straight time for overtime, paid an arbitrary rate less than the legally mandated time-and-a-half when it did pay for overtime, and failed to separate straight time from overtime hours or accurately record proper rates in overtime workweeks—all violations of the Fair Labor Standards Act.
Wage and hour violation claims are also prevalent in hospitality industries. In the 2022 fiscal year alone, the DOL recovered more than $30 million in back wages from hotel, motel, and food service employers for more than 25,000 employees.
Wrongful Termination Claims
Wrongful termination claims arise when employees believe their employment has been unfairly or unlawfully terminated.
Examples can include situations in which employees are fired for discriminatory reasons. In 2014, a former AutoZone store manager won $185 million in punitive damages because the company terminated her employment when she became pregnant.
Wrongful termination claims also include situations in which employees are terminated in retaliation for engaging in protected whistleblowing. In 2017, medical device company Cardiovascular Systems Inc. was found liable for approximately $25.1 million in damages in such a case. CSI had fired a regional sales manager after he told superiors about an illegal scheme of kickbacks to doctors, according to the manager’s attorney.
Misleading Statements and False Claims
When companies make misleading statements or false claims, they deceive shareholders and stakeholders. Such deception can lead to financial losses, damaged credibility, and public harm.
In 2014, Astellas Pharma agreed to pay $7.3 million to resolve allegations it violated the False Claims Act when marketing Mycamine for pediatric use. Although the FDA had approved the drug for adults, it hadn’t approved Mycamine for pediatric patients.
In March 2023, a Rite Aid shareholder filed a securities class action lawsuit against the company, including former and current executives. The suit alleges Rite Aid filed false or misleading statements with the Securities and Exchange Commission about alleged distribution of unlawful opioid prescriptions. As of this writing, the litigation is ongoing, but the public revelation of the suit alone caused Rite Aid shares to drop nearly 20%.
False Advertising and Deceptive Trade Practices
False advertising and deceptive trade practices betray fiduciary duty by prioritizing a company’s financial gain over customers’ trust and well-being.
One current trend is “greenwashing“—deceptive advertising claims about products’ and practices’ environmental benefits. “[C]onsumers have pled false labeling claims against food, beverage, and apparel retailers based on statements that their products were sourced in an environmentally friendly manner,” reports legal firm Seyfarth Shaw.
One high-profile deceptive trade practices settlement is Wells Fargo’s agreement to pay $575 million. The 2018 settlement resolved state consumer protection claims that Wells Fargo opened millions of unauthorized accounts and enrolled customers in online banking services without their knowledge or consent, among other improper actions.
Help Your Business Clients Protect Their Directors and Officers
The private company D&O claims examples we’ve discussed illustrate why D&O Insurance matters.
It can cover legal fees, settlements, and judgments, safeguarding directors and officers’ personal assets. It provides peace of mind for individuals in leadership roles. It can also help attract and retain talent who may be hesitant to take those roles without adequate protection.
Cases like these examples of D&O claims can take years to resolve and become costly. Your business clients must have adequate D&O Liability Insurance.
ProWriters can help you present this critical coverage to your clients. We can also help you secure the levels of D&O coverage they need. Download our free eBook, How to Become Your Clients’ D&O Insurance and EPLI Expert, for more information.
