When the shareholders are dissatisfied with the decisions made, they may choose to sue either individual members of the board or the corporation as a whole. Once charges are filed with the Massachusetts courts, expenses begin to add up quickly. Directors and officers insurance can help protect the corporate and personal finances of the board of directors when lawsuits occur.
Lawsuits against a board of directors can occur for a multitude of reasons. Perceived errors or misconduct may lead to lawsuits against individual members, while other causes may trigger a suit against the corporation as a whole. Additionally, corporations are overseen by Massachusetts and federal regulatory bodies, who are also able to file lawsuits as well as levy fines and penalties.
General liability insurance does not cover these types of lawsuits, leaving a business vulnerable to the many expenses associated with a suit. Directors and officers insurance is designed to help cover these costs.
Because lawsuits can be filed either against the corporation or against individual board members, directors and officers policies are comprised of several components to cover a variety of situations.
When purchasing a directors and officers policy, several coverage decisions need to be made. Most policies are claims-made, meaning only claims filed while the policy is in effect can be covered. However, you may be able to purchase an extended coverage policy, which allows you to report claims for a specified period after the expiration date.
Some policies may cover employment-related lawsuits, such as discrimination. If your policy does not, your insurance agent may advise you to purchase a separate employment practices liability policy to obtain this coverage.
In addition to a monetary claims limit, most policies have a variety of exclusions, such as criminal acts and fraud. There will also be limitations placed on coverage for lawsuits filed by former board members. You should discuss the limitations with your insurance agent to fully understand what your policy will cover.
Serving on a board of directors carries a responsibility to the shareholders. Corporations across Massachusetts are at risk for lawsuits against the entire corporation or the board of directors. These lawsuits can be filed against both for-profit and non-profit corporations. With directors and officers insurance, you can have important protections for personal and corporate finances when lawsuits occur.