Directors and Officers Liability Insurance Coverage in New York

Get to know D&O

With claims of misappropriation of technology, improper payments, cyber and privacy issues, fiduciary responsibility, business and nonprofit directors and officers face significant lawsuit exposure. When they do occur, these suits can result in millions in civil penalties, not to mention the cost and headache of a defense. It’s the rare director who would put their personal finances on the line for your business. Your board is one of your most valuable assets – why wouldn’t you protect them with D&O coverage?

What is Directors and Officers Insurance?

Also called D&O insurance, this is a type of liability insurance designed to protect the personal assets of your board of directors and company officers in the event they are sued for actions or decisions made in their capacity as directors and officers. Generally, it is used in claims resulting from managerial decisions that have adverse financial consequences. It can cover attorney fees, court costs, settlements and judgements in cases of discrimination, defamation, and mismanagement of funds. Coverage can also extend to defense costs arising out of criminal and regulatory investigations/trials.

How it helps your business:

Most board members expect this protection, so having D&O can help you recruit high quality people – and keep them.
Insurance helps your board focus on the task at hand (your business!), not worrying about exposure.
Gives venture capital investors confidence to invest in your company.

26% of private companies report experiencing a D&O loss in the last 3 years, with an average reported loss of $387,000. The largest reported loss was $17 million!

Who needs D&O Insurance?

It’s not just for big, publicly traded companies with shareholders: any company or nonprofit with a board of directors helping run operations is at risk. Your board can be personally sued over their performance as a board member or management of company affairs with lawsuits from employees, customers, investors and others. Without D&O, your board members would be personally at risk. That’s a risk many won’t take especially in New York where lawsuit demands can be higher.

D&O coverage can be written to cover directors and officers of:

for-profit businesses
privately-held firms
nonprofits
educational institutions

But with terms like A-side coverage, Duty to Defend and Claims-Made Coverage Trigger, we know this coverage can get confusing quickly. We’ll walk you through it and help you understand where your risks are, and just as important, where they aren’t.

You might think your small business isn’t on anyone’s litigation radar, but:

Why do I need D&O Insurance?

The Enron scandal ushered in an era of ever-increasing financial scrutiny and federal and state regulation on the entire business spectrum, not just listed corporations. It’s only natural your board is concerned about the critical issues they’re discussing and voting on, such as data breach reporting. D&O coverage protects your board from possibly tens of thousands of dollars in legal costs, plus the hassle of defending themselves in case of a lawsuit. Judgements can lead to millions in civil penalties, not to mention attorney fees, punitive damages, reputational losses, and business interruption. D&O defense and investigation costs alone can range from $300,000-$700,000.

What are the most common D&O policy claims?

Directors and officers are sued for a wide range of things related to their duties in private companies and nonprofits:

Fiduciary duty claims that the board misused, misrepresented or mismanaged company funds, resulting in financial losses. Ex: Your manufacturing company is having some financial difficulty and ends up defaulting on outstanding loans. Your creditors sue your board for failure to identify and secure the sale of company assets in a timely manner.
Claims by employees or prospects for discrimination, wrongful termination, breach of contract, invasion of privacy, and infliction of emotional distress if they’re not happy with leadership. Ex: Your nonprofit runs a search for a new executive director and the board interviews the top 3 candidates. An older gentleman, who is not hired, sues for age discrimination during the process based on a remark one board member made.
Claims by competitors or similar organizations for unfair competition, defamation or libel, trademark issues, patent infringement, theft of intellectual property. Ex: You left your old firm to start up your own software company. Your former employer sued you and your board, alleging you took their corporate licenses to market proprietary software, a trademark infringement.
Misconduct claims such as failure to follow the organization’s by-laws or regulations or lack of governance. Ex: Your board votes not to purchase Cyber Insurance, then your servers are hacked and customers’ personal data is released on the internet. Your board is sued for lack of governance.

54% of private company D&O losses were due to suits or fines brought by a customer.

D&O Coverage Quick Facts

There is no one standard D&O policy, each carrier has different forms. Your best bet is to rely on an experienced broker, such as HCP, to be sure you have proper coverage and limits and the right blend of risk tolerances versus cost. That said, here are some quick facts to get you started. D&O policies:

Contain “shrinking limits” provisions, meaning that defense costs—which are often a substantial part of a claim—reduce the policy’s limits. This is different than general liability where defense is covered in addition to policy limits.
Are written on a claims-made basis.
Usually contain no explicit duty to defend the insureds (when covering for-profit businesses).
Cover monetary damages but exclude bodily injury and property damage.

What it covers:

A D&O policy ensures that litigation protection is available to board members even if the company is financially unable to indemnify them or is legally prohibited from doing so. It usually covers:
- Attorney fees
- Court costs
- Settlements and judgements
D&O policies for private companies may include:
- A-side coverage – for directors, officers and sometimes employees
- B-side coverage – covers the company for losses when the company indemnifies directors and officers.
- C-side coverage – financially protects the corporation in its own right and may reduce the coverage available to protect individuals.
- Access to a Crisis Fund to hire a public relations firm in case of reputation-threatening events.
What it doesn’t:
- Fraud or other illegal acts
- Loss arising from bodily injury or property damage (those exposures are covered in general liability)

65% of executives mistakenly believe they are protected under general liability or umbrella policies. The policies don't proved the same D&O coverage.

What other coverages might I need?

Property – no matter if you rent, lease or own your own building
General Liability – for claims of injury or damage to property caused by you or your employees.
Professional liability (E&O) – If you offer professional services or regularly give advice to clients.
Workers’ comp – if you have employees
Employment Practices Liability – if you have even one employee
Cyber Insurance – If you store data, take credit cards or handle sensitive information
Auto policy – if you have company cars or use your own car for business

Depending on your business, you might need all or none of these. Don’t worry, we’ll examine your risks, see which coverages you really need and offer recommendations to protect your business. Plus, we’ll customize the size of your policy to the size of your business, then review your coverage every year to make sure we keep up with your growth. Anything less and we wouldn’t be doing our job.

Why should I choose HCP?

We’re entrepreneurs too and we’ll protect your interests as if they were our own. Honig Conte Porrino has worked with New York City boards of all types and we understand the challenges you must overcome to succeed. (We should, HCP has been doing this for more than 100 years!) Whether you’re a small company, a nonprofit or an educational institution, HCP has the expertise to help you every step of the way.

We’ll pair you with an agent who specializes in your area and can coach you on how to protect against the risks you face. In addition, many of our employees have worked with us 15, even 25 years, and make their career here. You get to work with the same person year in, year out. No need to initiate someone new to how your company works.

Directors and Officers Insurance in New York City