Key Coverages \ Directors and Officers

Directors and Officers are fiduciaries entrusted with the management of a corporation or an organization. Consequently, they can be held legally liable as a result of their activities when managing corporate affairs.

A Director or Officer owes a higher standard of care than an employee or manager does when it comes to managing an organization's affairs. The necessary duty of care will be determined by what an "informed" and prudent person would do or fail to do in the circumstances.

The policy indemnifies Directors & Officers for "wrongful acts" committed in the discharge of their duties. Allegations of poor judgment and misrepresentation are included in the policy as "wrongful acts".

Potential Liabilities

Many different types of suits can be brought against Directors and Officers:

Derivative Action, brought by shareholders on behalf of the corporation.
Representative Action, brought by shareholders against the Directors & Officers on their own behalf.
Third Party Action, brought by individuals outside of the Corporation such as officials, regulatory authorities, competitors or other parties.

The spectrum of allegations is enormously broad and could include:

Misleading representation
Misstatement of financial condition or lack of good judgment
Failure to act
Failure to disclose
Mismanagement of funds
Breach of contracts
Mergers and Acquisitions
Antitrust violations
Failure to remit unpaid wages and taxes
Acts beyond granted authority
Wrongful dismissal Discrimination

Reasons for Considering Directors' and Officers' Coverage

The Corporation or entity may not have sufficient resources to indemnify the Directors & Officers for losses and expenses incurred when defending an action against them.
Standards of performance are expanding so rapidly that it is becoming difficult to predict how the law will respond in specific circumstances. Either the existing applicable law or the corporation's internal indemnification provisions may be modified to limit or prohibit the expected indemnification.
Directors and Officers may demand it.
The composition or attitude of the Corporation's Board of Directors may change so that the Board is no longer sympathetic to the prior Director or Officer and they may not necessarily authorize any indemnification.
Because of public policy considerations and statutory limitations, some claims may be insurable but not indemnifiable. Two examples would be the violation of federal securities laws (although such items may be insured) and settlements from derivative suits, which may also, at times, be insured.
High costs of defense. It is common for legal fees to be up to 3 times higher than the actual settlement or judgment. These legal fees are incurred even if no liability is determined.

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