Directors & Officers Liability Insurance or D&O for short is a coverage part often missing from many of the manufacturing company insurance programs I review. In this video I’m going to explain why I think private company D&O is a must have for manufacturers.
In this article, we’re going to talk about D&O insurance and manufacturing firms. If you have other questions or issues on this topic or anything regarding business insurance I’d love to hear from you.
So let’s start with what D&O insurance covers and in this I’m going to include EPLI or employment practice liability since this is often made part of a private company management policy form. The crux of a private company D&O or management policy is to protect the company’s decision makers and leaders from claims that allege some form of a wrongful act that I’ll describe in a minute.
The policy will also protect the entity if named in a lawsuit as well. So, what’s a wrongful act?
Basically any wrongdoing or perceived wrong doing from a leader – this can include misstatements, misleading statements, a breach of duty, neglect, error or omission. When it comes to employment it includes things like wrongful termination, harassment, discrimination, etc.
Basically private companies need this protection from any number of different types of lawsuits that will name the company leaders personally for their acts – that why we call it personal net worth insurance.
So why do Manufacturers and the leaders of manufacturing firms need D&O protection?
The basic answer is that claims of this nature are expensive to defend against and settle and as i just mentioned the often will name the company leaders personally for their acts.
Without D&O your manufacturing firm is paying these claims out of pocket – or worse, your executives or directors are paying out of their personal pocket of this protection.
Claims of this nature are not covered by your general liability or umbrella policies and individually your homeowners or umbrella policies don’t cover these claims either.
So what are the common sources of claims alleging wrongful acts?
- If you have investors or an investor such as a private equity partner allegations of breach of duty are common. Any time an investor feels like company leaders are not acting in the best interest of the company and an investor doesn’t see the returns they expect, lawsuits commonly fly.
- Employment related claims are also high on the list of actions against manufacturers, including claims of discrimination, harassment, and hostile work environment.
- Regulatory claims are also top concerns since manufacturers must adhere to numerous regulations including health, safety and labor laws.
- Finally are bankruptcy related claims – if a manufacturer becomes insolvent the directors and officers of the company are often sued for their role in the financial downfall of the company by lenders, investors and other stake holders.
Why is D&O often not included in a manufacturer’s coverage portfolio?
I think it’s not talked about as often as it should be by insurance agents and brokers. That may be due to the complex nature of D&O insurance and how most insurance agents just don’t include this in their client conversations which is dangerous.
I also think that many business owners think that D&O is just for big public companies which is definitely not true. We write a lot of D&O insurance and I see the claims that come in from private firms, so I know it happens and when it does, it’s expensive.
Here’s the bottom line.
Manufacturing is a complex businesses that often includes layers of management, maybe a board of directors, and tons of potential lawsuit risks. It only takes one claim to wipe out a company’s balance sheet and impair it’s profit potential for years.
D&O is affordable and hedges this risk to give you and your other decision makers peace of mind.
Want to learn more? Want to find out what it costs?
For private manufacturing companies we can quote D&O on a short form application with less than 10 questions and get you results in just a few days. Why not reach out, let’s have a quick chat and talk about it.
Thanks!
