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Profit and Non Profit Organizations
Directors and Officers are fiduciaries entrusted with the management of a corporation or an organization and can be held legally liable as a result of their negligence in managing corporate affairs.

A Director or Officer owes a higher standard of care than an employee or manager does when it comes to managing an organization's affairs. Negligence will be based upon what an "informed" and prudent man would do or fail to do in the circumstances rather than just what a prudent man would or would not do in those circumstances.

The policy indemnifies for "wrongful acts" committed by the Director or Officer in the discharge of their duties solely in their capacity as Director and Officer. Allegations of poor judgment and misrepresentation are referred to in the policy as "wrongful acts".

Potential Liabilities

Different types of suits can be brought against Directors and Officers:

Derivative Action, brought by shareholders on behalf of the corporation.
Representative Action, brought by shareholders against the corporation on their own behalf.
Third Party Action, brought by individuals outside the corporation such as officials, competitors or other parties.
Employees can also bring suit for wrongful dismissal or severance pay after a bankruptcy.

The spectrum of allegations is enormously broad and will include:

Misleading representation

Misstatement of financial condition or lack of good judgment

Failure to act

Failure to disclose

Mismanagement of funds

Breach of contracts

Mergers and Acquisitions

Antitrust violations

Failure to remit unpaid wages and taxes

Acts beyond granted authority

Wrongful dismissal

Discrimination

Reasons for Considering Directors' and Officers' Coverage

The Corporation or entity may not have sufficient resources to pay the losses unable to be indemnified and expenses incurred by the Directors and Officers.

Standards of performance are expanding so rapidly that it is becoming difficult to predict how the law will respond in specific circumstances. Either the existing applicable law or the corporation's internal indemnification provisions may be modified to limit or prohibit the expected indemnification. Directors and Officers may demand it.

The composition or attitude of the Corporation's Board of Directors may change so that the Board is no longer sympathetic to the prior Director or Officer and thus does make the necessary determination to authorize indemnification.

Because of public policy considerations and statutory limitations, some claims may be insurable but not indemnifiable. Two examples would be the violation of federal securities laws (although such items may be insured) and settlements from derivative suits, which may also, at times, be insured.

High costs of defense - even if no liability is determined.

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