Directors and officers liability (D&O) insurance coverage is one of the most effective risk management solutions for privately held companies in order to deal with any possible litigation concerns. Lawsuits may be brought against directors and officers that could seriously impact your company. This is a concern for businesses of all sizes, regardless of whether a company is publicly traded or privately held.

Executives of privately held businesses are often involved in many aspects of the day-to-day operations of the company and are therefore vulnerable to being named personally in lawsuits initiated by any number of litigants, including employees, customers, creditors, vendors, competitors, and regulators.

Additionally, in many instances, your own personal net worth may be tied to the financial health of your firm, allowing costly management liability claims to be even more devastating. These factors alone create your need to speak to a management liability insurance specialist about ways in which you can transfer management liability risk onto a third party. A strong D&O insurance policy can help to protect the interests of the directors and officers while also preserving the balance sheet of the private company itself.

Important coverage considerations

Individual directors and officers of privately held companies often possess the same set of duties and fiduciary obligations to shareholders, much as their counterparts at publicly held companies. They may, under certain circumstances, find themselves personally exposed since they likely have fewer resources available to them, both internally and externally.

Given the level of risk that is assumed by the directors and officers on a company’s board, it is important that D&O insurance is procured to protect the interests of these individuals. Unfortunately, not all entities share this belief and this can lead to their having to learn a costly lesson when directors and officers are forced to pay their own defense costs, as well as settlement amounts and even judgments, out of their own personal assets.

Even if the company indemnifies the directors and officers, these individuals may still be exposed should the company become insolvent and there is no insurance available. Speak to a management liability insurance specialist concerning this invaluable policy.