Corporate America has long understood the value of Directors and Officers (D&O) Insurance, which provides liability coverage for a "wrongful act," such as an actual or alleged error or breach of duty.
The same was not always true for nonprofits and privately-held companies—but that reluctance to embrace D&O coverage as a part of an overall risk management strategy is beginning to fade.
The rapid, across the board, spike in D&O claims during recent years is forcing privately-held companies and nonprofit organizations to become more sophisticated in managing their executive risks.
Although it's true that they don't have to answer to angry stockholders, executives at nonprofits and family businesses still face significant executive liability exposures when acting as stewards of donated money or family trusts.
Thirty-five percent of nonprofits report having at least one D&O claim during the past decade, almost double the number that responded likewise in 2008.
Not even family businesses are immune from executive liability exposures. The leadership structure of a family business can become fractured as the business is passed from generation to generation. Disagreements about business decisions can quickly escalate into lawsuits as different family members vie for control.
In a recent survey of more than 450 executives from privately owned companies, nearly one in eight executives reported that they faced a directors and officers liability lawsuit within the past five years. The average cost to settle and/or litigate those cases was $225,682—with some losses exceeding $4 million.
Is your business prepared to shoulder the financial burden of an executive liability claim? Continue reading below to learn about how some businesses are choosing to manage this risk.