Your Simple Guide to understanding and purchasing D&O Insurance.
$700,000 AVERAGE PRIVATE COMPANY D&O CLAIM
$160,000 AVERAGE COST OF DEFENSE AND SETTLEMENT PAYMENT
If your private company isn’t protected with D&O insurance, you’ll have to pay for liability lawsuits, property damage, and work-related accidents from your own pocket — impacting your bank account and your company’s bottom line
But isn’t D&O insurance just for publicly held companies?
Many believe that only publicly traded companies need to protect themselves with D&O insurance, also known as management liability insurance.
In reality, the managers, board members, directors and officers who lead privately owned businesses in New York state are at risk of lawsuits, too… and general liability insurance doesn’t always offer adequate coverage.
Unfortunately, this misconception is so common that too many private companies don’t protect their leadership, leaving them (and their spouses) at risk of being sued. In the case of legal action, this lack of coverage can prove to be financially devastating; in 2016, the average cost of a defense and settlement ran over $150,000.
40% of small- and mid-sized businesses will be hit with a lawsuit within the next decade.
Are privately held companies required to carry D&O insurance in New York?
No. In fact, many businesses incorrectly believe that risk to their directors and officers is covered under their traditional general liability plan.
Due to this common misperception, less than 30 percent of private companies carry D&O insurance policies, thus exposing their leadership to unnecessary risk.
However, top-caliber talent often won’t join a company that doesn’t offer this D&O protection, as they do not wish to expose their personal assets to this type of liability.
But from where does this misconception stem? While it’s true that private companies in New York don’t have quite as extensive a list of potential litigants, thanks to a lack of shareholders and more narrowly distributed stock, in a litigious society, there’s no end to the list of those who may sue management for alleged wrongdoing or negligence.
Mistakes — or the perception thereof — can expose leadership to potential loss. Often, the costs associated with such claims can be catastrophic for both leaders and the business… which underscores the importance of indemnifying leadership in the case of a lawsuit.
Who Can Bring a Lawsuit Against a Privately Held Company in New York state?
It might surprise you to learn that the types of parties that might sue the leadership of a private, New York-based company are quite similar to those that might sue a publicly held corporation. These may include:
- Employees
- Creditors, banks and other entities that hold debt
- Labor unions
- Government agencies
- Regulatory agencies
- Vendors
- Customers and clients
- Investors
- Stakeholders
- Competitors
What are some common D&O claims in New York?
Research indicates a sharp rise in securities class action lawsuits (SCA) with the number of cases hitting an all-time high of 209 in 2016, as compared to 178 in 2015.
Together, settlements from SCA lawsuits reached $6 billion in 2016. Experts predict that the number of SCA lawsuits, including so-called “mega-settlement” suits, will continue to rise.
2016 also saw an increase in D&O lawsuits filed against small businesses, another trend that’s expected to continue.
Suits related to mergers and acquisitions are on the rise, as are claims related to cyber security. Increasing regulatory scrutiny around issues of data privacy and cyber security may increase risk for companies, both from regulatory agencies and clients.
How can D&O Insurance protect my New York-based business?
D&O insurance protects your business from loss resulting from lawsuits brought against directors, officers and management. These may include:
- Regulatory claims
- Alleged mismanagement
- Perceived mistakes
- Negligence or gross negligence
- Creditor lawsuits
- Wrongful acts
- Fraud
- Intellectual property theft
- Frivolous lawsuits (because you still have to defend against them)
D&O coverage protects your leadership and your bottom line by covering the costs associated with defense and settlement.
Looking for D&O insurance coverage for your New York business?
Contact us to speak with a D&O Insurance specialist who’ll guide you through the options for your business.
Sources
https://www.rpsins.com/knowledge-center/items/a-view-from-the-top-a-look-ahead-in-do/
https://www.insurancejournal.com/news/national/2015/10/28/386321.htm,
https://www.hiscox.com/documents/2017-Hiscox-Guide-to-Employee-Lawsuits.pdf
