Directors and Officers (D&O) insurance is often associated with public companies and shareholder lawsuits, but private companies have many reasons to take D&O coverage seriously.

Company leadership make high impact decisions every day and when things don’t go as planned, executives are at risk of being held personally liable. Beyond that, private company D&O policies provide valuable coverage and balance sheet protection for the company itself.

Potential Exposures

It’s sometimes assumed that privately owned companies with a few shareholders or a single owner have limited D&O exposure. While shareholders of private companies bring claims for a variety of reasons, many D&O claims are brought by third parties.

• Governmental and regulatory bodies can investigate and take action against private companies for alleged antitrust violations, self-dealing transactions, and other matters within the scope of regulatory oversight including private placements of debt and securities. Directors and officers may be individually investigated and named in such actions, requiring legal defense even when they’ve done nothing wrong.
• Third parties like vendors, suppliers, customers, and competitors may bring claims alleging unfair or deceptive trade practices, tortious interference, misrepresentation, and contract disputes. These claims are costly to defend, and proper coverage will respond to both lawsuits and written demands.
• Financial challenges can quickly turn into a D&O claim. Creditors may allege that management made decisions that harmed their interests, especially if the company becomes insolvent. Customers left without goods and services may also take legal action. D&O insurance steps in when corporate indemnification is unavailable.

Fine Print Matters

The definitions of “Claim” and “Loss” are just two critical coverage considerations that warrant closer review, and the definition of “Wrongful Act” is no exception. The scope of “Wrongful Act” should be broad to the extent that the best policies can be recognized by what is not covered, which is typically outlined with exclusionary language. The exclusion preamble, who it applies to (and when), and defense cost allocation are a few key differentiators between D&O policies.

Empower Your Business

Protecting your leaders with D&O coverage means you can focus on taking your company to the next level. Our Executive Risk Specialty Practice navigates the fine print and works with carriers to build tailored coverage solutions designed for your unique needs. Reach out today and let’s chat!