Directors & Officers Insurance (D&O) is needed in the event that a director and/or officer is sued in conjunction with the performance of their duties as they relate to the company. Directors & Officers Insurance (D&O) is like Errors and Omissions insurance (E&O) however the former is concerned with performance failures and negligence with respect to your products and services and not the performance and duties of management. It is a good idea to carry both policies.
If your organization is being considered by Investors, especially Venture Capitalists they usually require that you show evidence of Directors & Officers Insurance (D&O) as part of the conditions of funding your company.
Recent laws governing employment have opened the doors to a relatively new category of potential adversary for Directors & Officers-its own workforces. Laws such as the Americans with Disabilities Act of 1990, the Civil Rights Act of 1991 and the Family and Medical Leave Act of 1993 have contributed to a dramatic increase in claims involving not only wrongful termination, but also discrimination and sexual harassment. There laws are often poorly written and vague, resulting in considerable time and money expended in each case being interpreted by the courts. Unfortunately, statistics are indicating that plaintiffs are prevailing more times than not. In any case, it is an expensive road to travel for the defense.
Something else to keep in mind is that employment practices suits constitute the single largest area of claim activity under D&O policies. Over 50% of D&O claims are employment practices related.
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