Should a private company purchase directors and officers (D & O) liability insurance? The advantages of D & O liability insurance include protecting the personal assets of the directors and officers when corporate indemnification is not available such as when the company is in bankruptcy or there is a shareholder derivative suit. Insurance helps attract good outside directors. Insurance also protects the balance sheet of the company since the attorneys fees and costs of defending a lawsuit may exceed the net worth of the company.
The majority of D & O lawsuits come from shareholders, then employees. Types of claims include: shareholder claims, unfair competition, loan default, inaccurate disclosure, and breach of investment agreement.
How much insurance to purchase varies based upon industry, mergers and acquisition activity, asset size. Companies with assets of less than $50 million usually obtain policy limits of approximately $3 million.
Insurance proposals should be evaluated by attorneys, whether in house or outside.
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