Top 5 Reasons to Buy D&O Insurance
Posted by Lloyd Sadd Communications on Mar 19, 2012
- All business corporation statutes impose a standard of conduct upon directors and officers, if you fall below that standard you are exposed to personal liability. There are approximately 200 statutes that impose liability on directors and more than 100 that impose liability on officers. Understanding each and every statute and ensuring that 100% compliance is incorporated into daily business practices may not be humanly possible.
- Just about every company that has ever had a claim was quite sure, before the claim arrived, that they would never have a claim. The right time to buy insurance is when you think you don't need it. D&O plaintiffs include employees, customers, vendors, competitors, suppliers, regulators, creditors and a host of others.
- Relying on the Corporations by-laws for indemnification can be dangerous. By-laws are boring and don't get a lot of attention. If the corporation has been around for a number of years, its by-laws may not have been updated to adopt the broad language and forms of indemnification which are now permitted. Not all by-laws are the same and depending on who did the incorporation, the indemnification provisions may not have received as much attention as they should.
- There are situations where the corporation is not legally permitted to indemnify directors and officers, and in the worst case scenario due to financial problems the corporation does not have the wherewithal to fund exposures – personal assets are at risk.
- Anyone can sue anytime for anything – even for the frivolous or ridiculous. In the Chubb Insurance 2010 Canadian Private Company Risk Survey among the companies participating in the survey that experienced a D&O suit in the past five years, the average loss (settlement, judgment and legal costs) was $229,756. The largest event disclosed was $2,000,000 and 33% of the cases fell between $100,000 and $2,000,000. Why risk funding such an action from your balance sheet?