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Damage Control

If you've got shareholders, you better get D and O liability insurance.

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This story appears in the April 2000 issue of Entrepreneur. Subscribe »

Doing business is downright risky, as seasoned entrepreneurswell know. And sometimes, when business leaders take risks, theyend up making mistakes that cost their company-as well as theirstockholders and investors-substantial amounts of money. That'swhere directors and officers (D&O) liability insurance comesin: In the event those stockholders and investors decide to sue,the business owners may find themselves liable. David Ezra, anattorney with Berger, Kahn, Shafton, Moss, Figler, Simon &Gladstone in Irvine, California, answers why you need D&Ocoverage, and more:

  • What is D&O liability insurance? "It providescoverage for economic harms that result from wrongful acts ormismanagement by corporate directors and officers," Ezraexplains. Examples includes wrongful acts that can be considerednegligence and breaches of fiduciary duty where the directordoesn't act in the best interests of the shareholders. Theparticular policy, as well as the laws of the state where it'sissued, determine whether willful wrongdoing and criminal conductmay be covered.
  • Isn't any of this covered by general liabilitypolicies? Probably not. "General liability policiesnormally apply to bodily injury and property-damage-type claims,and certain other tort claims," Ezra says. "Theydon't cover pure economic losses, such as the losses thatdirectors and officers can be sued for when accused ofmismanagement."

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