Embroker Team January 29, 2024 3 min read

4 Examples of Common D&O Claims

Woman in business attire looks at presentation board on typical d&o claims

It’s no secret that you need strong executives and board members to help your business grow. The tricky part is when these leaders make decisions with legal implications that may expose them to personal liability risk. That’s when the D&O Claims (Directors & Officers) can start rolling in.

D&O coverage offers your executive team the assurance, security, and peace of mind that their home, personal finances, and other personal assets are secure should something in the company go wrong.

Let’s look at some worst-case scenarios and where D&O claims can save your company.

Examples of Common D&O Claims

Employment Lawsuits

Business is booming, and it’s time for some internal changes. The board decides to cut certain employees so they can focus more on areas of growth in the company.

One of your employees disagrees with the decision, declaring they should be allowed to stay with the company and that the decision to terminate was motivated by internal politics. They decide to sue and implicate certain executives in an employment lawsuit.

It’s now an awkward and expensive situation, much like what happened to NYTimes CEO Mark Thompson in early 2016. He faced “a multimillion-dollar class-action lawsuit alleging that he introduced a culture of ‘deplorable discrimination’ based on age, race, and gender at the newspaper.”

Combine D&O and Employment Practices Liability insurance to cover your bases when you and your executive team make hiring and firing decisions or set employee policies.

Legal Mishaps and Other Fiascos

Managing a smaller business? You may not have adequate legal counsel to cover all the legalities of running your business. In fact, you may even make some of the innocent but critical errors based on the best (but not necessarily accurate) information you can find.

For example, what if you fill out your taxes wrong? Or you accidentally break some labor laws when making some new hires?

D&O insurance will protect your management from failure to comply with workplace laws and a lack of governance. In other words, D&O insurance protects your company due to seemingly small but potentially costly legal and financial mistakes that often lead to D&O claims.

Letting Down Your Investors

An executive contemplates the consequences of their actions after a few D&O claims were filed against them and their business.

Seed funding: It makes a business grow. And just like you, investors are in it to win it.

But what if — try not to cringe — your new venture fails, or at least fails to meet investors’ expectations?

GoPro knows about this. According to Fortune Magazine: “An investor this week smacked the camera maker with a lawsuit that alleges executives harmed shareholders by masking information about the company’s struggles.”

If investors lose the money they’ve invested in your company, they could take action to get it back, which puts your directors and officers at risk. Even if your company succeeds and goes public, those same investors may feel the price of the shares isn’t strong enough.

All this could put your company at risk of legal action at a time when you’re vulnerable.

Accusations of Not Being Transparent

You’re transparent in business, right? — but if your directors and officers are accused of withholding information?

Bloomberg mentions companies facing litigation when “investors complain they missed out on bigger gains because they weren’t told about the good news that other shareholders, typically corporate insiders, and bigger backers, knew.”

There’s nothing worse than angry shareholders, investors, clients, or partners accusing your business of being less than truthful, and to top it off — putting your directors and officers at risk of a lawsuit… and you don’t have D&O coverage to rely on!

Want to know how to attract and retain the best directors and officers to your company? Get Directors and Officers (D&O) insurance — it protects your executive leadership from exposure to personal liability should something go wrong.

Read more in our Ultimate Guide to D&O Insurance or check out this short video to get a better understanding of the coverage that a directors & officers policy provides:

Now that you have a better understanding of D&O insurance, you may be wondering how all of this affects your business and where to go from here. If you need more help or information, you can reach out to our team of expert brokers. Or, if you prefer to get started on intelligent quotes, create your Embroker account today. 

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