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As a company grows and becomes more successful, it needs more managers to monitor its activities. Each department has its managers and directors responsible for overseeing duties and employees. These directors and managers are trusted to make decisions and take actions that benefit the company

However, they can also be held liable if any board member, investor, or governing authority believes they have failed their duty.

Fortunately, a policy called “directors and officers liability insurance” can cover such lawsuits. Despite this, many companies still do not believe that this insurance is important and think that their business may not need it. 

The truth is that every company needs a management liability policy. Therefore, this article will highlight why every business needs directors & officers liability insurance, regardless of size or industry.

What Is Director & Officer Liability Insurance?

Director & officer liability insurance (D&O) protects directors and managers from lawsuits due to alleged wrongful acts. The insurance is crucial to protect the high-level management roles.

Wrongful acts include accidental breach of trust, breach of duty, errors, misleading statements and wrongful trading. The policy will only cover directors and managers, not employees, but will cover lawsuits from employees towards managers.

Several reasons make director & officer liability insurance necessary for any growing business.

Reasons Business Need Director & Officer Liability Insurance

Legal Protection

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Dealing with lawsuits can be extremely expensive and complicated. Companies or individual managers must hire a legal team and pay their consultant fees (hourly) and possible settlement costs. It can disturb the company and the professional, especially if it is an allegation or an error.

The lawsuits could occur due to a breach of regulations, contract or fiduciary duty. Fortunately, director & officer liability insurance will provide legal protection against these lawsuits. Therefore, the insurance will cover the legal fees associated, even if the case is lost.

However, the insurance will not cover any director or manager involved in criminal acts. Insurance will be invalid if the accused has broken the law or committed fraud. The protection is a vital reason for startups and SMEs that may not have the funds to protect their high-role managers.

Attract High-Level Talent

Business reputation and credibility are crucial to be successful in most industries. Having the right talent plays a big part in success and reaching the right goals. Employees are more likely to work with dependable, credible companies that care for their employees. 

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Having the right insurance is a great way to increase credibility, especially liability insurance such as director & officer liability insurance. The insurance shows that the company cares for its directors and managers. 

Having D&O insurance is also a great way to hire the right senior-level workforce. Managers and directors appreciate working at a company that protects its high-level roles. The insurance allows them to focus on their job rather than the risk associated with their role. 

Protect The Innocent Management 

There are malicious situations where directors and managers are caught stealing, misusing funds, or sharing company secrets. In these situations, the investors and board members will sue the professional(s) involved.

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Investors and board members may not understand the situation in detail and sue all the directors and managers, alleging all were involved. Not all directors and managers are involved in most cases, but are still legally liable to prove their innocence.

One of the crucial reasons businesses need director & officer liability insurance is to protect the management workforce that is innocent and wrongly accused. The insurance will not cover any criminal acts but will help the innocent. 

The policy will also help pay the investors any sentiment cost due to the guilty manager, so all do not suffer.

Attract Investors 

Many businesses depend on their investors and their monetary investments. Investors invest funds in companies hoping to gain profit or help a cause. They trust directors and managers to hit the goals.

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Investors want their funds to be protected and not be used for lawsuits. Hence, businesses should purchase directors & officers liability insurance to ensure investors their funds will not be used in liability claims. (The insurance must be bought with other liability insurance to cover all lawsuits)

D&O insurance provides coverage for settlement costs if investors decide to sue a company for poor decision-making. As a result, local and international investors know that if a company fails to deliver on its promises, they can take legal action to recover some of their losses. 

Consequently, companies that have high-quality protection are more likely to attract investments.

Growing Business

Every company wants to keep growing in their industry and reach new markets constantly. A part of growing a business is increasing the team size, hiring new employees and changing the management structure. 

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As the business grows, so do its liability risks, including risks related to directors and managers

Director and officer liability insurance becomes a must during this time. As there are investors involved who expect more, more managers mean a higher chance of errors or breaches of duties. Every business could deal with such risks and should have the proper protection.

Having D&O insurance provides the protection to deal with these growing risks without large financial losses. The bigger the company, the harder it is to keep an eye on everything and everyone.

What Companies Need Director & Officer Liability Insurance

Director & officer liability insurance is a crucial part of liability protection. Almost every company needs D&O insurance to protect CEOs, CFOs, Human resource managers, etc. You may need the policy even if you are a founder with a few non-management employees. The insurance is beneficial to even NGOs and nonprofits worldwide.

A lot can go wrong due to errors, misunderstandings or malicious managers. Without director & officer liability, insurance professionals and companies may feel lost and unable to deal with the costs and process.

The insurance’s financial protection is the best way to help managers deal with liability risks and recover. Managers and companies do not have to worry about the hefty costs and focus on clearing their image and planning the next step.

Leading staff play a crucial part in any business and deserve to be protected by director & officer liability insurance during unpredictable lawsuits.



To Learn More about director & officer liability insurance and get the best liability coverage for you and your company managers, contact Red Asia Insurance.