Non-profit or for-profit boards can obtain financial protection for its members against suits in conjunction with the performance of their duties in relation to the company. Board members can be held personally responsible for acts of the company, and will demand to be protected by this coverage rather than put their personal assets at stake to serve as a corporate director or officer, no matter how heartfelt their belief in the organization.
Decisions and policies of a board are not immune from public scrutiny. Shareholders, employees, customers, suppliers, competitors or government agencies may bring an action against a company and its board. Directors & Officers insurance can usually include Employment Practices Liability and sometimes Fiduciary Liability. The former involves harassment and discrimination suits, and is where the majority of your exposure will be.
Typical lawsuits allege: A. Mismanagement of operations or company assets; B. Self-dealing and conflicts of interest; C. Misrepresentation during the sale of company assets; D. Misrepresentation in a private placement prospectus; E. Acts beyond authority granted in by-laws; F. Violation of certain state and federal laws; G. Breach of fiduciary duties
These types of litigation can last for extended periods and becoming a financial burden and a continuous drain to the company’s profit margin. Organizations unable to indemnify its directors, officers or employees, because of allegations, suit or the company’s insolvency, could become the financial burden and personal responsibility of the company’s directors, officers or employees.