D&O INSURANCE
> •
•
Direct action—In a direct-action
lawsuit, a shareholder or a group
of shareholders brings a claim
against management for damages
in their interests as shareholders.
In this instance, shareholders are
the benefactors of any financial
settlement.
Derivative action — In derivative
proceedings, shareholders — acting
as the organization — sue the
directors and officers. In this form
of litigation, shareholders generally
claim for damages caused to the
organization, with the beneficiary
of any settlement being the
organization itself.
CUSTOMERS
While customers dictate an organization’s
success, disputes with these individuals
can bankrupt a company altogether.
In fact, customer disputes can lead to
lawsuits against an organization as well
as their directors and officers. Commonly,
lawsuits from customers relate to
contractual disputes, debt collection,
the costs or quality of products or
services, the refusal to extend credit, and
discrimination.
PROTECTING DIRECTORS AND
OFFICERS
For an organization with many internal
and external risks, protecting its directors
and officers can feel like an uphill battle.
While these risks are serious, companies
can rest assured that they aren’t without
recourse. There are a number of strategies
organizations can implement today that
will protect their leadership team well
into the future.
RISK MANAGEMENT
When it comes to limiting an exposure,
specific risk management strategies
are critical. For directors and officers,
the first line of defense from a claim is
to have a deep understanding of their
responsibilities. In general, all directors
and officers should be aware of the
following:
• Their responsibility to the
corporation
• The role they fulfill on the board or
in a management capacity
• The expertise they are expected to
bring to the position
8
With these responsibilities in mind,
directors and officers must use sound
judgment and act with care. This
means they need to demonstrate tact
and diligence when attending board
meetings, reviewing board materials, and
questioning matters put before the board.
Doing so will greatly reduce the risks of
litigation.
Some carriers can provide general
materials relating to risk management
guidance upon request. Directors and
officers are encouraged to consult
their own legal counsel for specific
advice as it pertains to corporate duties,
responsibilities, and exposures. +