Public Officials D&O Insurance: Understanding and Reducing Your Risks

This blog was originally published on February 19, 2014. It was updated and re-published on November 5, 2018.

In business organizations and public entities, there has been a heightened sensitivity toward civil and criminal legal matters in recent months. Given more news coming out about cases of misconduct, it’s important for managers, officers and directors of organizations to understand the serious financial and reputational consequences that come with them. The intricate nature of the decisions a manager has to navigate through on a daily basis and the sensitivity of their work environment combine for a risk for their organization.

But while it is vital to keep in mind the risk of working in a public space or operating at a serious organization, making the case for a solid insurance plan should be a priority for insurance providers. A recommendation is to offer Directors and Officers Liability insurance for public officials and other managers. Let’s go over the way this coverage can help to reduce risk.

Is D&O Insurance a Necessity?

This is a fair question, as some municipalities and companies already have liability insurance in place. In reality, while D&O insurance is not a necessity, it does add a certain level of safety for those with more responsibility on their plate. Take into consideration the fact that 415 lawsuits were made public in 2017 against businesses. Out of these lawsuits, a majority of them were made against senior executives, CFO’s and CEO’s of businesses.

Employees are becoming increasingly aware of their rights within an organization and are choosing to exercise them more frequently now. Also, while growth of a business is a positive thing overall, it does open up more opportunity for risk, such as data protection and healthier employment practices.

When it comes to corporate behavior and company culture, investors are holding businesses and their leaders more accountable for their actions and will either pull funding or call for replacements to be made.

Risks to Understand

Directors and officers should be cognizant of the current climate in corporate culture, as mentioned above. The traditional work environment is changing and employees are holding their leaders more and more accountable. But even putting the evolution of the office climate aside, there are still traditional liabilities and risks to be diligent about.

D&O’s should always refrain from getting personal with employees, whether it’s in activities outside of work or engaging in any type of relationship, especially romantic in nature. Leaders should also stay away from earning secret profits or unfair advantages through personal transactions with or on behalf of organizations. And in general, keeping any form of personal interest in gaining something, be it in finances, relationships or business advantages is ideal.

Other risk scenarios could be related to reporting errors, inaccurate or inadequate disclosures, decisions exceeding the authority granted to a company officer, corporate manslaughter, insolvencies, and divestitures.

Typically, a company or organization would purchase D&O policy along with their business insurance, like general liability. But given the fact that these are not one-size-fits-all packages, it would behoove D&O’s to invest in additional coverage. Since a director and officer are held responsible for acts of the company, more D&O’s should ask for a layer of protection to keep their reputation and jobs safe.

About PGUI

Professional Governmental Underwriters, Inc. is a full-service risk management company dedicated to assisting public, educational and non-profit entities in the management of their professional liability exposures. We are dedicated to providing state-of-the-art professional underwriting management and loss control advisory services on behalf of our designated carriers. For more information, call us toll-free at (800) 586-6502.