When handling clients, employees, contracts, personal information and finances, insurance agencies face a great deal of liability risk. Those perhaps the most at risk are the directors and officers advising the business.
Directors and officers insurance covers claims against certain supervisors of the business. Lawsuits are notoriously expensive, especially if they are drawn out over a long period of time. Small private agencies may have difficulty bouncing back under an extensive lawsuit, and not having coverage can quickly run a small company out of business. This insurance takes the financial burden of a lawsuit and court fees from the business.
Types of Directors and Officers Claims
Employee Lawsuits
One of the most common types of D&O insurance claims relates to employees. Employees may file a claim against an agency’s board for:
- Discrimination based on gender, race, religion, etc.
- Sexual harassment
- Wrongful dismissal
- Wrongful hiring or firing
- Failure to promote
- Mishandling of employee benefits
- Employment contract breach
Keep in mind that D&O is not the same as workers compensation and won’t cover claims concerning work-related injuries, even caused by negligence.
Authorities
Insurance agencies must adhere to certain laws and regulations. The National Association of Insurance Commissioners (NAIC) monitors and regulates insurance agencies along with the federal government. Violating regulations or failing to adhere to certain insurance laws can land an agency and its directors in hot waters. D&O insurance may assist with legal expenses if a claim is filed against the agency’s directors concerning NAIC or other federal regulations.
Other Insurance Agencies
Competition can be healthy for businesses, but even healthy competition can turn into a lawsuit in a heartbeat. Another agency may file lawsuits on the basis of:
- Intellectual property breach/theft
- Collusion
- Theft of trade secrets
- Defamation
Creditors and Shareholders
Creditors and shareholders have a large investment in the operations and success of any insurance agency they decide to support. As such, they keep a close eye on their investments to make sure nothing is going awry. If they do find something suspicious or negligent, creditors and shareholders have the right to sue. Lawsuits of this nature may be over:
- Negligence
- Misconduct
- Breaching fiduciary duty
Shareholders and creditors may sue for money they lost in the agency due to any of the above factors.
While providing insurance, it’s just as important to make sure the agency is protected from possible liability risks.
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