D&O Insurance Is a Sound Investment for Companies Big and Small
When a lawsuit regarding alleged financial wrongdoings is in the news, it often involves large public companies that are often targets of stakeholders because they believe that they are the victims of misconduct by directors or officers of these firms. They then cite financial mismanagement, misappropriation of funds, or other forms of negligence and decide to pursue litigation. But just as often there are middle-market firms, as well as smaller firms, that are also frequent targets of these very same types of lawsuits.
Companies big and small all face the same types of risks
There are many people with these very same risks and exposures that refuse to believe they may become embroiled in such litigation and therefore resist the need for directors and officers (D&O) insurance, simply because they are affiliated with companies that have few shareholders. They may take a look at their past record and conclude their company could never have a D&O claim, which obviously is the furthest thing from the truth. Every company is a potential target for a claim of errors or omissions.
This kind of perspective overlooks the fact that the vast majority of prospective D&O claimants is quite broad and may include customers, vendors, competitors, suppliers, regulators, creditors and others who may be affected. Even a frivolous suit can be expensive to defend while, at the same time, the cost of D&O insurance is relatively low.
When a company has a claim against one of their officers or directors, expenses can mount very quickly. Consider that the court is less likely to approve the removal of an individual employee or director named in a suit if the company is in weak financial condition, because of concern that the weak financial footing of the company could affect any payment to the plaintiff should the plaintiff prevail.
A D&O lawsuit consumes a lot of time in terms of preparation and defense. This can cause considerable financial damage to the company in terms of lost production, lost opportunities and dissatisfied customers, not to mention the harm their reputation will experience.
One very important benefit to having D&O insurance coverage is being able to utilize the expertise of the broker or agent.Fortunately there a many insurance companies that can handle these types of claims with a level of expertise that can make the experience less of a burden. The knowledge acquired in this specialized field of law can make all the difference in the outcome of a case.