Director and Officers Liability: Not Just for Large Corporations
Directors and officers liability insurance is a common expense for major corporations. They understand their top people wield a great deal of power and have a lot of responsibility, and that can extend to relationships with customers, employees, and other companies. D&O insurance protects these officers and the company from legal repercussions that result from actions of top company officials. However, even midsized and some smaller companies in Alberta should consider this kind of protection, because lawsuits are a distinct possibility in today’s litigious world. Let’s look at an example involving companies A and B.
Company A was enjoying its newfound prosperity. Six months ago they hired an exceptional young man to take over their Vice President of Operations position and he made some major changes that yielded a number of positive results. They now had many more customers and company profits had never been higher. Then one day, a major problem developed. Company B was suing company A and their new officer for theft of classified business information, customers, and intellectual property.
In the lawsuit, company B alleged that their previous company director left and took sensitive information with him when he joined company A. Some of the information concerned proprietary formulas and materials in which company B had patents and exclusive rights to. That is the reason for company A’s recent success and this caused severe hardship for company B.
Company A was in major trouble. Because they were a mid-sized corporation, the owner did not believe that they needed directors and officers insurance. Company A believed that their umbrella insurance policy would cover issues like these, but it turned out they were wrong. In fact, the new VP of Operations was guilty of theft and fraud and the lawsuit dealt an enormous blow to Company A. They never recovered and eventually could no longer stay in business.