Private Companies Also Need D&O Insurance

Carrie Maylor DiCanio and Robert Horkovich of Anderson Kill address the misconception that D&O insurance is just for public companies, and outline the risks private companies should consider when looking to purchase it.

 It is a common misconception that company coverage under D&O policies is limited to liability arising out of the public sale of securities. This misunderstanding has led many private companies to believe that they do not need D&O insurance. In fact, several risks faced by private companies may be covered by D&O insurance – including government investigations, allegations of fraud, claims stemming from a private sale of securities and claims alleging breach of contract. These types of claims may raise coverage issues that risk managers for private companies should consider when purchasing D&O insurance.

I.  Government Investigations

Private companies and their directors and officers are subject to government scrutiny and may face regulatory action. Two issues arise repeatedly where a claim is made for coverage of a government investigation. One is whether regulatory investigations constitute a claim that triggers coverage under a D&O policy. The second is whether there is coverage and, if so, the extent of coverage for alleged fraudulent acts.