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What is directors and officers insurance?

Directors and officers insurance (D&O insurance) is a type of liability insurance designed to protect the personal assets of directors and officers of a company. This insurance covers legal expenses and damages that may arise from claims made against these individuals for alleged wrongful acts committed in their capacity as directors or officers. In Florida, D&O insurance is essential for organizations, as it helps protect the personal assets of the leadership and the company’s financial stability.

One situation that may necessitate D&O insurance is when a company faces a shareholder lawsuit alleging the directors’ or officers’ mismanagement or breach of fiduciary duty. Another example is a regulatory investigation into potential violations of securities laws or other regulations by the company’s leadership. In both cases, D&O insurance can provide financial protection for the directors and officers involved and the company itself.

Need help with a matter related to directors and officers insurance? Schedule your consultation today with a top insurance attorney.

In Florida, which laws and regulations apply to D&O insurance?

One key statute is the Florida Business Corporation Act (FBCA), which outlines the duties and responsibilities of corporate directors and officers and the potential liabilities they may face. The FBCA also governs the indemnification of directors and officers by their companies, which is relevant to D&O insurance coverage.

Directors and officers in Florida must be aware of the laws and regulations governing their roles and responsibilities and the potential liabilities they may face. D&O insurance can be essential in mitigating these risks and protecting the individuals and the company they serve.

What are common disputes regarding directors and officers insurance that lead to litigation?

The following disputes are among the most common in actions regarding D&O insurance:

  • Policy Exclusions: Disputes may arise over whether a specific claim is covered under the policy or if it falls under an exclusion. Policyholders may argue that the exclusion does not apply, while insurers may argue it does.
  • Bad Faith Claims Handling: Policyholders may accuse insurers of acting in bad faith by delaying, denying, or underpaying valid claims without a reasonable basis.
  • Rescission: Insurers may seek to rescind the policy based on misrepresentations made by the insured during the application process. Policyholders may contest the rescission, arguing that the misrepresentations were not material or intentional.
  • Insufficient Policy Limits: Policyholders may argue that their policy limits are inadequate to cover their losses, leading to disputes over the appropriate amount of coverage.

We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

What measures should an insurance carrier take to minimize the risk of litigation over directors and officers insurance? 

To successfully mitigate the risk of litigation over D&O insurance, insurance carriers should follow these steps:

  • Clear Policy Language: Use clear, unambiguous language in the policy to reduce disputes over interpretation and coverage.
  • Thorough Underwriting: Conduct a thorough underwriting process to accurately assess the risk and ensure the policy is appropriately tailored to the insured’s needs.
  • Transparent Communication: Communicate openly and honestly with policyholders throughout the claims process, addressing any concerns or questions promptly and transparently.
  • Prompt Claims Handling: Handle claims promptly, adhering to all applicable deadlines and regulatory requirements.
  • Fair Claims Investigation: Conduct a thorough and impartial investigation of each claim, gathering all relevant information to determine coverage and liability accurately.
  • Document Decision-Making: Maintain clear and detailed records of the decision-making process for each claim, including the reasons for any denials, exclusions, or other determinations.
  • Continuing Education: Ensure that claims handlers and underwriters receive ongoing training in relevant laws, regulations, and industry best practices to minimize errors and misinterpretations.

By following these steps, insurance carriers can reduce the risk of litigation and foster positive relationships with their policyholders.

What must be proven to file a lawsuit regarding directors and officers insurance successfully, and what are common legal defenses to those claims? 

Claimants seeking indemnification under D&O insurance, particularly in the context of a breach of contract, must prove the following elements in court:

  • Existence of a valid insurance contract;
  • Coverage for the alleged claim under the terms of the policy;
  • The plaintiff suffered damage; and
  • Defendant’s breach of the insurance contract caused the plaintiff’s damages.

Defendants may raise the following legal defenses against D&O insurance claims depending on the relevant facts:

  • Policy Exclusion: The policy may contain specific exclusions that preclude coverage for certain acts or circumstances.
  • Late Notice: The defendant may argue that the plaintiff failed to provide timely notice of the claim, as the policy requires.
  • Misrepresentation: The defendant may assert that the plaintiff misrepresented the insurance application, voiding the policy.
  • Bad Faith: The defendant may claim that the plaintiff’s lawsuit is frivolous or unsupported by the evidence and that the plaintiff is acting in bad faith.

To see what actions or defenses may be available for your unique situation, please contact our office to set up your initial consultation.

Frequently Asked Questions

What is the role of D&O insurance in corporate governance?

D&O insurance serves as a financial safety net, protecting corporate executives from potential personal liability arising from their decisions and actions in their professional capacity. This coverage can encourage strong corporate governance by allowing executives to make decisions without fear of personal financial loss.

How does a company determine the appropriate level of coverage for its D&O insurance policy?

Determining the right amount of coverage requires a thorough assessment of various factors, including the company’s size, industry, risk profile, and financial position. Companies should consult insurance brokers and legal professionals to evaluate their needs and obtain appropriate coverage.

Can D&O insurance policies cover defense costs in addition to settlement or judgment amounts?

Most D&O insurance policies cover defense costs, including legal fees, expenses, and settlement or judgment amounts. However, policy terms may vary, and it is crucial to review the specific policy provisions to understand the extent of coverage.

Have more questions about a directors and officers insurance-related situation?

Crucially, this overview of D&O insurance does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.

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