Should you be insuring your managers?

Just like all other employees, your manager, director, and CEO can make mistakes.

They’re regularly responsible for decisions that are both tough and complex. And, no matter how careful they are or how strong their business acumen is, sometimes things just go south. In this article, we take a look at how to protect your company from costly litigation, financial losses, and claims which may arise from the decisions made by your leadership team.

Directors & Officers Liability Insurance (D&O) … What is it?

Most business owners like to give their directors and managers enough room to make the tough calls. Confidence and trust are an essential part of running any successful business.

At the same time however, it’s also important to maintain some level of security and certainty in your business practice. D&O insurance is designed to support good corporate governance by providing liability cover for your directors and managers. Now, your leadership team is backed by their company and strong corporate insurance cover. They have the safety net that provides the peace of mind required to manage your business to its full potential.

Who is D&O insurance for?

It’s a myth that only large, publicly traded companies are at risk of being sued. You don’t have to have shareholders, lots of employees, or the backing of prominent financial investors to be sued in relation to D&O.  Any business or non-profit director, no matter what size their organisation is, can be targeted by litigants over the management of that particular organisation’s affairs.

Why do you need D&O insurance?

Without D&O insurance, your business’s directors and managers are vulnerable to many risks and personal exposures. In the event that your manager or corporate director is personally sued — often in addition to your company being sued — your business assets and their own personal assets could be at stake. Not to mention, the costs to settle or litigate your D&O related cases could be in the tens of thousands, or even millions!

Financial risks

Sometimes the cost of defending your company director exceeds your annual profit. For example, an engineering consultancy firm with five staff were recently in a bind when a competitor launched proceedings against them.

  • The case: the competitor claimed that the engineering firm breached patent and design rights, as well as having misleading and deceptive conduct.
  • The cost: The claimant sought damages of $1,000,000 and the engineering firm were forced to pay out $500,000 in defense costs. That’s a lot of money for a small business with a gross turnover of $1,000,000.

Other risks for not insuring your managers include:

  • Increased complexity for multinational companies, who have investors, trading partners, and operations in different jurisdictions all over the world.
  • Unforeseen costs generated by legal fees, settlements, administrative tasks, and criminal proceedings.
  • Bankruptcy and significant financial loss.
  • Unwanted negative media attention.

Common risk scenarios

Some of the most common reasons for D&O litigation include:

  • Employment and human resources issues (e.g. discrimination, sexual harassment or wrongful termination)
  • Inaccurate or poor disclosure (e.g. in company accounts)
  • Reporting errors
  • Misrepresentation in an advertisement or brochure
  • Failure to comply with regulations or laws
  • Decisions exceeding the authority granted to the manager or director

Are you looking for a business insurance broker in Brisbane? Call Allsafe today on 07 3420 4122, or send one of our friendly staff members an online enquiry.

General Advice Disclaimer
The information in this article is to be regarded as general advice. Your personal objectives, needs and financial circumstances were not taken into account when preparing this content. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement and Financial Services Guide from Allsafe Insurance Brokers before making any decision to purchase a financial product.

More articles

Search our website