Every public, private and non-profit business requires decision-making. Most businesses place the biggest decisions in a manager or other decision-making body like a board of directors. The larger the business, the more complex the company’s management becomes.
Even in single-person operations, management decisions could lead to mistakes. Should these mistakes financially harm the operation, the business might struggle to recover lost costs. In these cases directors & officers (D&O) insurance could help you mitigate the cost risks.
What constitutes a D&O insurance risk?
D&O insurance applies to the operators of a business, usually high-level management or members of a board of directors.
These operators engage in decision-making that could lead to financial losses for the organization. Even a clerical or procedural mistake could open the door for a substantial insurance risk. Some of these common risks include:
- Property damage due to management decisions
- Failures to follow decision approval processes by the board or management
- Misrepresentation of assets
- Failure to comply with workplace safety or workers’ rights laws
- Improper removal of board members
Should any of these accidents occur, the financial loss or damages may be grounds for someone to sue your business. If this happens you might have to use your D&O coverage to pay legal costs. Or, if a mistake leads to physical or asset damage to the business, these insurance policies could help cover repairs or replacement.
Improving D&O Risk
No business wants to encounter a D&O insurance claim. Owners should do what they can to avoid D&O insurance claims in the first place. A transparent business can help reduce and prevent risks from its governing bodies.
Some might say that avoiding D&O risks is easier said than done. Mistakes can happen, regardless of how many precautions an owner takes.
Nonetheless, it is possible to reduce risks, even though one may not be able to eliminate them. Protective business measures improve the chances of maintaining a reliable, affordable D&O insurance policy. Business managers can reduce their risks by…
- Maintaining a comprehensive review and oversight policy that monitors the actions of the company’s directors
- Establishing clear, non-negotiable policies that govern workplace law and governing body procedures
- Implementing an extreme vetting process to govern hiring and retention of all directors and officers
We’ve got your coverage needs in mind. Call U.S. E&O Brokers at (800) 460-6424 for more information about D&O insurance coverage.