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Posts Tagged ‘directors liability’

Outside Directors and the Risk of D&O Liability

Saturday, January 30th, 2010

Liability  attached to officers and directors and the remedies available are  a moving target impacted by changing case law and regulation and also influenced by jurisdiction of the corporate entity.  However, some basic caution is required of those who serve as officers, directors and members of corporate entities since companies do not provide consistent levels of cover for liability that may attract directly to the board individuals.  The case study below makes the point that you should ask some questions about protections provided before accepting appointment to a board even as an outside director.  If you have questions about your risk and the coverages available  please contact us.

Meridian is a highly dynamic specialized insurance consulting group and broker with offices in Boston, MA, Newport, RI and Brookfield, CT. We specialize in risk management and risk transfer for companies interested in energy, sustainable practice and private criminal justice. We are members of the Sustainable Business Network, Slow Money Alliance, International Energy Credit Association, Connecticut Maritime Association and American Correctional Association. Our Mission is simple.  We seek to help our clients make the best risk and risk transfer decisions possible.

We bring market-leading service to the most creative solutions in the risk management field to ensure that each Meridian client achieves their risk objectives.

“A company’s directors are sometimes held personally liable for misconduct even when the firm carries directors’ and officer’s liability insurance. In 2006 and 2007 five outside directors of bankrupt shoe retailer  paid $41.5 million to settle a lawsuit brought by a court-appointed trustee charged with recovering money for creditors. A 2001 Alabama lawsuit had charged the directors with conflict of interest and breach of fiduciary duty. Although directors’ and officers’ insurance generally provides coverage for these types of judgments, the firm’s officers had pleaded guilty and subsequently consumed nearly all the firm’s liability insurance coverage in settling an earlier class action lawsuit filed by shareholders. Only $100,000 in coverage remained for the outside directors. It was unclear whether a third-party source, such as an employer, covered the settlement by the outside directors. For example, companies can purchase special liability insurance designed to protect and benefit individuals as opposed to the business entity. Coverage would have been more likely if the directors’ employers had encouraged them to serve on the board.”  Case study excerpted from The American Heritage Dictionary of Business Terms 2009 edition