What Are the Most Common Risks & Claims for Directors & Officers?

The Most Common Risks & Claims for Directors & Officers in San Diego, CA

Many business owners in Southern California believe directors and officers (D&O) policies are only for publicly traded enterprises or for very large corporations with large amounts of shareholders, investors, and employees. This is certainly not the case. D&O insurance is a specific type of San Diego commercial insurance that protects companies of any size as long as they follow a certain business structure. In general, executive officers can be individually exposed to various risks and claims, including the following.

Investor Lawsuits

Whether they are shareholders or parties to certain equity positions, investors are known to become aggrieved when their financial stakes lose value. Distressed investors often seek legal compensation if they believe their losses are connected to alleged misconduct by executives.

Breach of Fiduciary Duty

This risk is similar to shareholder lawsuits in the sense that executive malfeasance, misconduct, or irresponsible behavior is alleged. However, the nature of the claim is often centered on the failure to carry out duties of care. For example, creditors may allege that a director failed to identify a beneficial transaction that would have allowed the company to continue making debt payments.

Unhappy Customers and Clients

It does not matter whether a company follows a business-to-business or business-to-customer model. The risk of executives being sued by company clients is simply a matter of perception. If clients feel a company is acting in a dishonest or fraudulent manner, they will not hesitate to pin the blame on the officers and directors. Should one of these situations turn into a class-action lawsuit, lack of San Diego directors insurance could be problematic.

Intellectual Property Theft

Let’s say an apparel design company appoints a new board member who held an executive position at a rival company. This new director has many creative ideas and exciting designs that prompt his or her former company to allege theft of intellectual property. This type of situation is common among companies that design and manufacture products, particularly clothing, toys, and electronics.

Director Versus Director Action

Board members suing each other is something that is not limited to major corporations. Let’s say a San Diego housekeeping service is owned by husband and wife as the only two shareholders. Should they get divorced, the aggrieved spouse may claim the other director deliberately mismanaged the company out of vengeance for the marital separation.

Employment Issues

A disgruntled worker who sues his or her former employer for wrongful termination may not be satisfied with just one lawsuit. If the worker feels like going on an aggravating legal crusade out of spite, he or she may target a board member and bring up discrimination or harassment complaints. Whereas employment practices liability insurance in San Diego will likely protect the company against the wrongful termination claim, the same cannot be said of the discrimination and harassment action, which will fall under the purview of D&O insurance.

If you run a business, there are many potential insurance needs, from commercial auto policies to workers’ compensation. At American Tri-Star, we can meet these needs, and we also offer car, home, health, and bond insurance. Give us a call at 619-272-2100 today to speak with one of our knowledgeable agents.