Bad Judgment?
Even top execs can make mistakes. With the right coverage, it's no problem.
Savvy entrepreneurs hire smart executives to run their
companies--but what happens if one of those directors or officers
makes a mistake and you get sued? With directors and officers
(D&O) liability insurance, you--and they--are protected.
According to Anita Setnor Byer, president of Setnor Byer Insurance
& Risk in Fort Lauder-dale, Florida, D&O "covers
directors and officers against wrongful acts typically described as
bad business judgment." Such acts are not covered under your
general liability insurance. "The exposure of directors and
officers is separate and distinct, because they are stewards of the
enterprise," Byer says.
D&O would kick in if, for example, one of your directors or
officers unwittingly used intellectual property belonging to
another company or individual, if they committed a breach of
confidentiality that caused economic damage, or if they just made a
bad business decision.
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How can you tell if your company needs D&O coverage? You
should do your own risk assessment, but Byer says you are probably
a candidate if your company is very visible or active on the
Internet (which increases your likelihood of being a litigation
target), if you're in an aggressive growth mode, or if your
directors and officers are being relied upon as a fiduciary
(meaning they are in a position with a high expectation of good
decisions and trust).
D&O policies are complex; when you shop for this type of
insurance coverage, be sure to do it with an agent who regularly
writes the coverage and understands it well.
Jacquelyn Lynn is a business writer in Orlando,
Florida.