Executive Liability: How to Properly Protect Executives

PRESCRIPTION OF THE MONTH

Charles Malmquist, CPCU, ARM, AAI

770.913.1201

Paul Tuggle, CPCU

770.913.1208

John Lowden

770.913.1209

Ron Cuen
770.912.1204
Kevin Chojnacki
770.913.1213

Every day, directors and officers make decisions that impact the success and future of their company. Recent headlines bring more news of corporate scandals and financial suffering, and because of that, an increase in the scrutiny of conduct of directors and officers. Lawsuits can be brought against the executives of a corporation, large or small, by shareholders, employees, customers, suppliers, competitors, and regulatory agencies. What is important to note is that a lawsuit against company executives can put their personal finances at risk.

Many business owners and executives are concerned and uncertain in this environment. In the past, savings accounts frequently provided individuals or families with asset protection and financial support for lost income in the event of a financial crisis. However, in today�s challenging economic climate, many people are living without much, if any, savings to provide a cushion.

In these times of financial uncertainty, it is becoming more important to protect your assets. Many directors and officers are actually purchasing insurance coverage because of the bad economy, not in spite of it. Combined with the increase in scrutiny on the role of executives, now, more than ever, executives and companies need the safety net that insurance policies can provide. There are several coverages that will help protect executives, including Directors & Officers Liability, Employment Practices Liability, and Fiduciary Liability.

Directors & Officers Liability
Directors and Officers:
- are responsible for leading and managing organizations.
- are held accountable for the financial status of the business.
- must ensure the business is in compliance with a myriad of federal and state laws and regulations.

For example, one recent claim scenario involved allegations by creditors stating that the board of directors depleted the company assets by paying dividends and salaries to the directors and officers prior to the sale of a company that was financially insolvent. This resulted in $1,250,000 to settle the claim.

Having Directors & Officers Liability coverage in place will help cover the cost to protect a director or officer in the case that there has been an allegation or investigation.

Employment Practices Liability
Employers:
� are obligated to be fair to all current employees, as well as potential employees, regardless of their background.
� are required to follow several State and Federal laws regarding the hiring and firing of potential and current employees.

In one claims scenario, a female hospital VP served as an interim CEO of her hospital. She received positive reviews during her service. The Board of Directors later decided to hire another candidate, who also happened to be a younger male. The interim CEO�s attorney sent a demand letter to the hospital alleging age and gender discrimination of the client. This resulted in $700,000 to settle the claim.

Having Employment Practices Liability coverage in place will help protect employers inthe event that a complaint is brought against them.

More, page 2.

Executive Liability: How to
Properly Protect Executives

October 2008

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The information contained above is intended to be illustrative and discusses general insurance issues. It is not designed to give any specific legal advice pertaining to any specific circumstance. It is not intended as a policy of insurance, binder, or state of coverage or as an amendment, modification or waiver of the terms and conditions of any policy of insurance. In every instance, a policy is the only accepted statement of coverage, and it is important to read and understand your policy. Contact your agent if you have questions regarding your coverage.

All original content 2010 Potter-Holden & Company. No content may be copied, reproduced, published, and/or distributed without the express permission of Potter-Holden & Company.