Directors and Officers Liability

5 Common Sources of Directors and Officers Liability

Anthea Business Insurance

In today’s business climate of corporate transparency and accountability, an organization’s officers and directors face a myriad of exposures. Regardless of your company’s size or mission, the legal costs associated with a lawsuit can be crippling for both the organization and your directors and officers.

Directors and Officers Liability

The following are five of the most common sources of directors and officers (D&O) liability:

1. Employees

Most directors and officers are surprised to learn that their own employees are one of the most common sources of a D&O claim against their organization. Common employment practices claims against directors and officers include wrongful dismissal, discrimination and breach of contract.

2. Government and Regulatory Authorities

If regulators discover that wrongful conduct has occurred, they may pursue legal action against the organization and the executives involved. Government and regulatory bodies monitor compliance with a broad range of laws, including corporations, securities, consumer protection, occupation health and safety, and taxation law.

3. Competitors

If an organization’s competitors believe that they have been unfairly disadvantaged by dishonest or illegal behaviour, they may seek legal recourse. Directors and officers can be brought into legal actions for a range of perceived wrongdoings, including breaches of intellectual property, misappropriation, collusion and anti-competitive behaviour.

4. Creditors

If an organization becomes insolvent, creditors will often scrutinize the decisions of directors and officers to see if they can be held personally responsible. If debts are left unpaid when an organization goes into liquidation, creditors can pursue executives personally in an attempt to recover outstanding funds.

5. Shareholders

Due to their financial investment, shareholders have an incentive to monitor an organization’s ongoing performance and ensure that directors and officers are acting in the organization’s best interests. With potentially large sums of money at stake, if shareholders are not pleased with an organization’s direction, they may take measures to protect their investment.

Contact us to learn more about D&O protection options for your company so that these 5 sources of liability are adequately covered.