Does Your Small Business Need Directors and Officers (D&O) Insurance?

d&o insurance for small business

Even a small business that is not publicly traded can be vulnerable to expensive lawsuits, levied against the company itself and against the company’s officers and directors. Directors and officers (D&O) insurance protects companies, helping many small businesses avoid bankruptcy. Experts say D&O insurance coverage is essential to most businesses, even small privately held companies.

What is D&O Insurance?

D&O insurance is liability coverage to protect a company’s directors and officers if they are personally sued by employees, investors, vendors, customers or competitors. It covers expenses related to legal fees, settlements and more. If the company itself is named in the suit, D&O insurance can also protect the business.

Why You May Need D&O Insurance?

Besides wanting to protect your company if it is named in a lawsuit, there are other reasons it may be wise to own D&O insurance.

  • Investors and financiers can require the business carry D&O insurance.
  • Newly appointed directors or hired officers often require D&O insurance to protect their personal assets.

Common Lawsuits

Directors and officers can be sued for a number of reasons involving their positions in the company including:

  • Misuse of funds
  • Misrepresentation of company assets
  • Fraud
  • Breaking workplace laws

A couple of the most common complaints filed against directors and officers, as well as private companies themselves, involve employees and customers. Customers are a leading plaintiff in suits against directors and officers in private companies, and employee suits are a growing concern. For this reason, it is advisable to purchase employee practices liability insurance (EPLI), along with D&O insurance.

Employees sue company management for a variety of reasons related to employment practices including:

  • Discrimination
  • Wrongful termination
  • Sexual harassment
  • Failure to promote

A new company and its directors and officers can also be sued in cases of employee piracy. This is a situation where an employee leaves one company to start another. The former employer may sue for theft of customers, intellectual property and other information.

Bankruptcy is also a leading cause of lawsuits against directors and officers. Plaintiffs might be lenders, creditors, investors and customers.

More Information Regarding D&O Insurance

Find out more about D&O insurance and seek out advice from your insurance provider or broker. EINSURANCE provides information about small business insurance, types of coverage and more here, where you can also get quotes from different providers.

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