One important part of doing business today is minimizing the level of risk that the company and employees are exposed to. One significant risk that companies overlook is having investors or other interested parties sue the directors or officers of the company, should its value go down. This is most commonly seen with very large companies when their stock price drops significantly, which is why about 95% of Fortune 500 companies hold insurance against this type of lawsuit. The insurance is called Directors and Officers Liability Insurance, or “D&O” for short.
When Is D&O Insurance Necessary?
The average settlement cost of securities fraud litigation (which is one of the things D&O insurance covers) was more than $8 million, with another $1 million in legal fees as of 1999. The potential risk has gone up even further since then. These numbers make it clear why major corporations require this type of insurance, but they aren’t the only ones.
While a small to mid-sized company isn’t likely to have settlement costs that high, they can still be very significant. Any company that has investors of almost any type will want to look closely at this type of insurance to determine whether or not it is needed. As with all types of insurance, the costs in premiums will be based on the overall level of risk that is present. This means that even smaller companies with relatively low risk of experiencing any type of litigation will still want to consider a policy.
What Is Covered?
D&O insurance began way back in the 1930’s with some very basic coverage, and has grown and expanded many times over the years. Today there are many different policies under the D&O category, each providing specific coverage based on the needs of the client. A typical policy will pay for the legal expenses associated with defense against charges (if necessary) and pay out any settlements or verdicts that come as a results of the case.
The policy should cover both the company as a whole, and the individual officers and directors of the company, who are more often the target of these types of lawsuits. For many companies, this type of policy is considered a benefit afforded to those employees who reach that level within the organization.
Discussing Your Options
The best way to determine whether you need this type of coverage is to speak with an attorney. The Law Office of Ray Garcia, P.A. can look at your company to determine what level of risk is present, and make recommendations on the type of D&O policy you may want to consider. Contact us [Link to CONTACT US page] to discuss your options and get answers to any questions you have.
Law Office of Ray Garcia, P.A.
Latest posts by Law Office of Ray Garcia, P.A. (see all)
- Parenting Plans for Children With Special Needs - April 15, 2024
