Running a small or mid-sized business comes with a lot of responsibility. You’re constantly making decisions that can impact your employees, your customers, and the overall success of your venture. While you strive to make the best choices, unforeseen circumstances can lead to lawsuits alleging negligence, breach of duty, or other wrongdoings. This is where Directors & Officers (D&O) insurance becomes a critical safeguard for your company’s leadership team.

What is Directors & Officers Insurance?

D&O insurance protects your company’s directors and officers. Which are the individuals who set the strategic direction and oversee the day-to-day operations. From personal financial liability arising from lawsuits connected to their decisions made while serving in those roles.

Why is Directors & Officers Insurance Important for Small Businesses in the Great Lakes Region?

The business landscape in Ohio, Indiana, Michigan, Kentucky, and Pennsylvania is as dynamic as ever. Increased regulations, a growing focus on corporate governance, and a heightened awareness of shareholder rights all contribute to a climate where lawsuits against directors and officers are on the rise. Here’s why D&O insurance is particularly important for small businesses:

• Financial Protection: Lawsuits, even frivolous ones, can be expensive to defend. Legal fees can quickly drain personal savings. D&O insurance covers these costs, ensuring your directors and officers can focus on defending themselves without worrying about financial ruin.
• Attracting & Retaining Talent: Serving on a board or as a company officer can be a daunting task. D&O insurance demonstrates your commitment to protecting your leadership team, making your company a more attractive place for qualified individuals to serve.
• Peace of Mind: Knowing they’re covered allows directors and officers to make decisions with greater confidence, fostering a more proactive and effective leadership style.

What Entities should consider Directors & Officers Coverage? 

• For Profit Companies- Any for profit business.
• Non-Profit Entities- Any 501c3 designated non-profit.

What Does D&O Insurance Typically Cover?

D&O insurance policies can vary, but they generally cover expenses associated with:

• Defense Costs: This includes attorney fees, court costs, and other expenses incurred in defending a lawsuit.
• Settlements & Judgments: If a lawsuit is settled or a judgment is awarded against a director or officer, D&O insurance can help cover the financial costs.
• Investigations: Even if a lawsuit isn’t filed, investigations into alleged wrongdoing can be expensive. D&O insurance can help cover these costs.

What type of claims scenarios are covered under D&O policies?

• Breach Of Duty: A claim scenario could arise from something as simple as not following the company by-laws, even if it’s by accident.  By-laws can be vague in some cases which can cause confusion on what is to be followed, which may lead to lawsuits for these breach’s.
• Breach Of Trust: A non-profit puts on a fundraising event, the proceeds from the event are deposited by an employee into the non-profits general checking account and used for general expenses vs the allocated expenses of the event proceeds. The board of directors could be sued for improper supervision. They then may face damages for the improper use of the funds.
• Wrongful Termination: A board of directors ultimately decides to terminate a high-ranking company executive due to poor behavior and performance in the workplace. In turn the terminated employee files for wrongful dismissal on the basis of alleged contractual interference. The organization is then forced to defend the allegations. The defense costs alone could be hundreds of thousands of dollars.
• Contract Dispute with Merger and Acquisition activity: Non-competition and non-solicit agreements are commonplace for key people in almost any sales organization.  These agreements can range from 12 months all the way up to as much as 10 years or more.  A key executive is part of the sale of an organization and signs a 5 year non-compete with the purchasing entity. During this 5-year period the buying entity goes bankrupt, and the vendors start to contact the original seller. The buying entity legal counsel catches wind of the engagement. They immediately file a suit against the seller for breach of contract.  While there was no ill intent of the seller and the buyer was in a defunct status, they still have to defend the suit. They are defending the suit  against any wrongdoing of the in-force non-competition agreement.

How Much Does It Insurance Cost?

The cost of D&O insurance varies depending on several factors. These include, but are not limited too:

• the size & industry of your company
• claims history
• the limits of liability you choose

A simple non-profit policy with a liability limit of $1,000,000 can cost as little as $750 per year. While a for profit entity with sales around $50,000,000 with $10,000,000 in D&O coverage limits can cost as much as $40,000 per year. There is no simple answer to pricing. ood record keeping, good claims history, and good management practices greatly reduce the cost of the coverage.

Tailoring D&O Insurance to Your Small Businesses Needs

At Hitchings Insurance, we understand that every SMB has unique needs. Our experienced agents will work closely with you to assess your company’s specific risks and develop a D&O insurance plan that provides comprehensive protection for your directors and officers.