The Benefits of D&O Insurance for Private Companies

Business leaders often assume Directors’ and Officers’ (D&O) Insurance for private companies is something they don’t need. They think private companies aren’t as vulnerable to D&O exposure as public companies are.

This assumption could not be further from the truth.

Private companies, their executive officers, and their boards of directors face a host of exposures. And they are just as susceptible to lawsuits as their counterparts in public companies.

Indeed, more than 25% of private companies experienced a D&O loss in a span of three years, according to one survey. Of these businesses, nearly all (96%) suffered a financial impact.

Being a business leader is challenging. Making the right decisions at all times is next to impossible. Lawsuits can damage the careers and personal lives of highly skilled directors, officers, and executives.

Private company Directors’ and Officers’ Insurance is important for mitigating the risks positions of business leadership bring.

What Is D&O Insurance?

Broker reviews terms of D&O Insurance for private companies with clients at table in office.In today’s litigious society, businesses face a high risk of liability and lawsuits. Employees, customers, investors, competitors, regulators, and other external entities are all third parties who can and do sue corporate officials.

D&O claims can be expensive. The average cost of a D&O claim is $400,000.

D&O Insurance coverage shields a company’s directors and officers from the financial fallout of legal actions taken against them in their roles as organizational leaders. It’s designed to protect their personal assets in the event they are sued for alleged wrongful acts or negligence while performing their duties. It typically covers legal fees, settlements, and monetary damages arising from these lawsuits.

D&O Insurance is an important form of protection. It helps mitigate the financial risks associated with leadership roles in companies. As such, it encourages individuals to take on such roles.

Why Private D&O Insurance Is a Must

Paper headed “Directors & Officers Liability INSURANCE” on wooden desk near fountain pen and eyeglasses.The legal standards of conduct private companies must meet are identical to those publicly held companies must meet. Directors and officers of private companies must fulfill their responsibilities with utmost obedience, loyalty, and diligence. Any perceived or actual breach of these duties can lead to lawsuits from customers, employees, or investors.

The directors and officers of private companies are closely involved in all facets of the business. This reality makes them individually susceptible to different claims and allegations.

Due to their size, many private companies lack access to external resources for defending against costly lawsuits and claims. The financial and personal impact on the company and its management is harder to recover from without D&O Insurance.

D&O Insurance for private companies provides protection from these most common exposures:

Claims by Employees

Common claims against companies and their directors include allegations of employee harassment, wrongful termination, and discrimination.

Claims by Clients and Consumer Groups

Some common claims are false advertising, misleading statements, and contract disputes.

Claims by Competitors

Common allegations include infringement of patents and trademarks, unfair competition, and antitrust violations.

Claims by Regulatory Agencies

If a business fails to comply with regulations, regulatory bodies can pursue legal action against the management.

Claims by Shareholders or Lenders

Misrepresentation and inaccurate disclosures are common causes of lawsuits. Since private companies are not required to disclose their financial data publicly, stakeholders rely on their statements. D&O Insurance can cover the cost of defending breach of fiduciary duty claims.

In addition to protecting the management from these common claims, a D&O policy can help private companies considering going public have an easier transition by protecting them from potential liabilities.

Additional Benefits of D&O Insurance for Private Companies

D&O Insurance also provides the following advantages for private companies:

Peace of Mind

D&O claims come from various parties and entities. By investing in D&O coverage, companies can ensure that they are protected, regardless of the claims’ source.

Ability to Attract New Leaders

A robust D&O policy showcases a company’s effort to protect its management. This effort makes the company management seat more appealing to potential leaders.

Reimbursement of Legal Costs

Following allegations of financial mismanagement, wrongful acts, and negligence, D&O Insurance can provide legal cost coverage for these claims. This blanket of protection can help the company and its management bounce back financially and continue operating even after a costly lawsuit.

Protection Against Regulatory Exposures

The cost of defending the company or its directors against third-party regulatory bodies can be expensive. A D&O Insurance policy provides much-needed coverage.

Address Your Clients’ Exposures and Vulnerabilities With ProWriters

Insurance professional sits at cubicle, reviewing D&O Insurance for private companies before presenting to client. As awareness of private company D&O liability grows, these companies seek all-encompassing, cost-effective coverage solutions from D&O Insurance providers.

As an insurance professional, you can bridge the gap between their need and the solution. You can educate your business clients about their D&O exposure. You can also quote and sell them comprehensive, competitively priced policies with ProWriters’ help.

At ProWriters, we offer D&O coverages from industry-leading insurance companies that match your clients’ unique needs, at rates that fit their budget. We also provide brokers and agents like you proven tools and valuable resources for becoming the first expert to whom your clients turn.

To find out more about D&O Insurance for private companies and other Management Liability policies, download our free eBook, How to Become Your Clients’ D&O Insurance and EPLI Expert. It will give you knowledge you need to help your clients shield themselves from the risk of potentially devastating financial losses.