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Comment on do you need D&O insurance

May 12, 2023
Comment on do you need D&O insurance from April 22, 2023 article
          Saw this blog posting and thought I would send over what we share with our clients who are considering purchasing D&O coverage. 
Why Buy D&O Coverage
A D&O policy should primarily be considered defense cost coverage. The two main areas of exposure one should consider are claims against the individual directors/officers (for an LLC board of managers/appointed advisors or member managers) and against the firm. There is a level of responsibility, or standard of care these individuals are expected to maintain.  If an action from one of these individuals falls below the standard of care, they could be sued and held personally liable for resulting damages.
Claims against the individuals/entity can come from clients, customers, venders, competitors, regulators, investors, or during a merger.  The coverage for the firm should be thought of as balance sheet protection in a worst-case bankruptcy scenario that protects the company’s assets in the same way a property policy protects a building in the event of a fire. While you don’t expect the building to burn down, you still buy the insurance.
Now let’s look address the coverage in the context of some potential claims.
Negligence of Duties
A director or officer may be sued for negligence in the performance of his duties. This may result from failing to file annual reports, failing to supervise, regular absence from meetings, and failing to inspect the company’s books and records. An example of negligence may be if an employee is embezzling from the company, and the directors and officers fail to find the embezzlement and stop it. The company’s shareholders may sue for damages that arose from this negligence; the lawsuit would be covered by a D&O policy.
Wrongful Acts
A wrongful act may include violation of a statute, improper self-dealing, conflict of interest, fraudulent financial statements, a tort, violation of the articles of incorporation of by-laws or transactions with companies in which the officers or directors have a personal interest. A misrepresentation as to the company’s business or finances may qualify as a wrongful act for purposes of a D&O claim.
Improper Management Suits
Officers and directors may also be sued for improper management of the company’s finances. This may include inefficient administration of the company that results in losses or extending credit where it is not warranted. This may also arise when a company sells its assets for an unreasonably low price.
Coverage of Fines, Penalties, and Other Legal Costs
D&O policy claims examples can be found in other contexts, such as government investigations. When a government or regulatory agency investigates a corporation, the costs may be high, even if no wrongdoing is found. For example, if a company is suspected of violating laws relating to handling of private information, the investigation may take years to complete and may require thousands of hours’ worth of attorney fees. A D&O policy may cover the cost of the investigation, as well as any penalty levied by the government.
Wyatt Quigley, Account Executive
J. Krug
Insurance | Employee Benefits | Financial Services
One Pierce Place Suite 1250W
Itasca, IL 60143
          Thanks for your helpful advice.  J.Krug is listed on The Alarm Exchange in the insurance category and that means they know the alarm industry insurance needs.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301