As a director or officer of an organization, there is always the possibility of becoming the target of a lawsuit because of actions taken in connection with the business. Directors and Officers (D&O) liability insurance is a type of liability insurance meant to protect individuals from suffering personal losses when they become the subject of such a lawsuit. D&O insurance can also be used to cover legal fees and other costs that are associated with the organization being involved in the lawsuit.
The insurance proceeds are paid to directors and officers of the company or organization. These funds can, in turn, be used to cover any losses or reimburse the defense costs associated with any legal action. It’s also possible to have D&O coverage extended to cover regulatory and criminal investigations as well as trial defense costs.
In more recent years, it is common to have both civil and criminal actions brought against directors and officers for the same incidents. In fact, a survey of privately-owned companies reports that 26 percent had a D&O-related lawsuit in the last 5 years. Here is the most important information on D&O insurance and how it protects senior executives and their businesses.
Form Of Liability Insurance
D&O insurance is sometimes confused with errors and omissions insurance, which is another form of liability insurance. The policies of D&O insurance can take a variety of different forms that depend on the nature of the organization and the unique risks found in the particular industry. Organizations will usually purchase D&O insurance to cover a group of individuals. Since these policies are tailored, it’s advisable to seek out an insurance company that has experience in your specific field.
Many different hazards can be written into the policy to insure the organization is protected in a wide variety of situations. In most cases, fraud, criminal activity, and profits made illegally are excluded from these policies. There’s also usually an “insured vs. insured” clause. This prevents payout on a claim in the event that a former or current director or officer sues the company.
How D&O Insurance Can Protect Directors & Officers in the Entertainment Industry
The exposure that a large corporation gets is not very different from what small and medium-sized production companies will experience. In fact, the lawsuit rates against directors and officers are very similar for companies of all sizes.
Privately-held production companies can face litigation such as bankruptcy, wrongful dismissal and dissolution of a partnership, and misrepresentation. Bankruptcy cases can lead to statutory liability, in which case the directors will bear the burden of paying for costs such as unpaid wages.
Protects Intellectual Property and Insures Against Personal Losses Due to Legal Cases
Intellectual property includes literary and artistic works, such as those found in a filmmaker’s script that eventually makes it to the screen. Claims regarding intellectual property tend to be one of the most financially devastating claims covered under the D&O Insurance umbrella. It’s also one of the most complicated. Intellectual property claims are contingent on proving that someone did not have the same idea as another, which can be difficult.
Directors and officers can take precautions to minimize the possibility of being bought into an intellectual property suit. Incoming employees should be questioned about whether they are the subject of any non-compete agreements. If they are, it’s important to understand what the stipulations are for their work within the industry.
Production companies should seek the advice of an insurance broker when determining how to incorporate protection against intellectual property claims into a D&O insurance policy. An insurance broker will be able to assess the potential risks within your organization and decide how best to secure protection against intellectual property infringement or protection from a lawsuit.
Helps Cover Legal Fees When Claims are Made From Cast or Crew
Many D&O claims made against private companies are employment-related. For a production company, their cast and crew make up the employment base. The type of actions which may lead to a claim by a current or former employee include:
- Wrongful termination claims
- Employment Practices Wrongful Act claims
- Demotion or the failure/refusal to hire or promote an employee
- Workplace harassment
- Retaliatory treatment
- Negligent evaluation
- Breach of an implied contract
The COVID-19 pandemic is also expected to lead to an increase in litigation being filed by employees, stockholders, and customers of organizations. Several lawsuits have already been filed, indicating a new trend of increased risk for organizations across different industries.
Working in a production setting has raised many concerns because of the working conditions of production sets. Cast and crew work in close proximity to one another and may be required to travel to different locations and work long hours on sets. Even with safeguards in place, there’s still the risk of being exposed to potential litigation as it’s impossible to completely protect against exposure from the COVID-19 virus.
Work With the D&O Experts
With the threat of lawsuits in a production setting becoming more of a concern, it is important to protect your business and your high-ranking employees. Talk to the experts on the MFE Insurance team to learn more about how D&O insurance coverage can benefit your business. We have the experience in the industry to find the right insurance fit for your business needs.