Not a Member? Get access to HR news and resources that you can trust.
Standing desks and other innovative workstations can help counterbalance the negative health effects of sitting.
Is your employee handbook ready for the New Year? With SHRM’s Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Get the HR education you need without travel expenses or time out of the office.
Elevate Your Talent Strategy. Join us in Chicago, IL – April 24-26, 2017.
Directors and officers are concerned about their liability should their organizations face a lawsuit or regulatory investigation, according to
a recent survey from Towers Watson. In 2011, more directors or officers (69 percent) inquired about the amount and scope of directors and officers (D&O) insurance coverage than did in 2010 (57 percent).
With increasing regulation, and increasing litigation, company leaders want to be sure their personal assets are protected should they be named in a lawsuit against their company, said Larry Racioppo, vice president of the executive liability practice at Towers Watson. Many use directors and officers (D&O) insurance to accomplish that.
Speaking in a
YouTube video, Racioppo said companies are facing a “shifting mix” of litigation: securities fraud cases brought by federal regulatory and law enforcement agencies; breach of fiduciary duty claims; and derivative actions.
“This is fallout from the subprime credit crisis,” Racioppo said, saying that companies must now stand up under increasing scrutiny from the Securities and Exchange Commission, states’ attorneys general, the Equal Employment Opportunity Commission (which saw a record number of claims in 2011) and the Federal Deposit Insurance Corporation. “Moreover, the costs to defend these lawsuits continue to escalate,” he wrote in the published survey.
Towers Watson conducted its survey online Oct. 18-Nov. 28, 2011. Four hundred and one organizations that purchase D&O liability insurance participated in the survey. The average in total policy limits for respondents—including private, public, charities and nonprofits—was $86.9 million.
A significant portion of companies said in 2011 they had increased the total limits of liability in their D&O program: 25 percent of public companies did so, while 14 percent of private and nonprofit companies increased their limits.
Though the majority of respondents said the scope of coverage for directors is the most important aspect of their companies’ D&O coverage (75 percent for public companies, 50 percent for private), very few companies actually purchase insurance dedicated to independent/outside directors (7 percent for public, 1 percent for private/nonprofit). Seven percent of public companies and 6 percent of private/nonprofit companies said protecting the needs of the corporate officers were most important, while 12 percent of public and 29 percent of private/nonprofit respondents said protecting the organization was tantamount. As a practical matter, wrote Racioppo, most companies construct a D&O program that covers all three aspects.
Most of the survey participants have not had any claims against their D&O liability policy in the past 10 years. When examined by sector and size, nonprofits (48 percent) were most likely to report claims from that period, followed by public companies (36 percent) and private companies (17 percent). Nearly half (48 percent) of companies with $10 billion or more in assets reported claims in the past 10 years, followed by 43 percent of companies with assets in the $5 billion-$9.9 billion range.
Most claims come from shareholders, including direct claims, reported by 45 percent of respondents, and derivative claims, coming from 45 percent of respondents. Private (36 percent) and nonprofit (73 percent) companies reported that most of their claims came from employment-practice liability matters.
Beth Mirza is senior editor for HR News. She can be reached at
Legal Report: The HR Manager’s Guide to Employment Practices Liability Insurance, Part 1
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Choose from dozens of free webcasts on the most timely HR topics.
SHRM’s HR Vendor Directory contains over 3,200 companies