Why do private companies need directors and officers (D&O) liability insurance?

Even if you have commercial general liability, it may be a good idea to think about getting directors and officers liability insurance, more so if you belong to a private company. Private companies are not exempted from lawsuits. You see, directors and officers of a private company may be held personally liable for their actions and decisions in the course of their performing their duties for the company.

A company director or officer may be held liable and may face a lawsuit for:

• Errors and omissions
• Misstatements
• Misleading statements

It is a good idea to get D&O liability insurance in order to protect your company in case a personal lawsuit is filed against one or more of your company's officers. Although a personal lawsuit may look to that particular officer or director's assets, the company may still be called upon to mount a legal defense for the officer or director in question.

Here are some situations that can help you decide whether you need to get D&O coverage for your private company:

• If your company's directors and customers are answerable to customers, stockholders, government entities, competitors and creditors
• If you operate in a state that does requires your company to defend its directors and officers
• If your company by-laws requires it to provide indemnification in case an officer or director is involved in a lawsuit
• You can provide D&O liability insurance as part of your benefits package for your officers and directors. This is also to help protect the officer's and director's personal assets from a particularly financially debilitating lawsuit. This way, they have a more comfortable level of risk - there is a cushion that can protect them against personal lawsuits.
• If your company is involved in cutting-edge innovations, which make the company more susceptible to class-action suits
• If the company is heavily dependent on debt financing
• If there are plans for succession of ownership or of management
• If there are potential problems with regards to relationships with stakeholders - such as investors and creditors

You can try to get D&O insurance from your existing insurance company. You can also look for the opportunity to get a good deal by getting this coverage through your professional or trade associations. These can provide the coverage at a discount since the associations can buy it by bulk and sell it to member companies.