Comments on: I won’t serve on a board without D&O insurance!

By: Dennis Cagan

Dennis Cagan — Sun, 18 Mar 2018 21:07:02 +0000

Dave, I also love your periodic postings. I have to agree with you. After 62 corporate boards, mostly early-stage, I am happy to say I was only sued once – but it was a whopper and fully covered. Many times we did not have D&O, but the circumstances were very constrained, and we got it as soon as adequate funding came in. As you said, policies vary. When I once had a policy reviewed it literally only covered one director suing another – that’s it. Not really worth a dime. Use a professional agent. (If you care to include her, mine is Mindy Joslin in San Diego (805) 570-5300)

By: Michael O'Daniel

Michael O'Daniel — Sun, 18 Mar 2018 18:53:56 +0000

One area that’s often overlooked is the equally critical need for nonprofit boards to have D&O insurance. Many nonprofit officers / board members of under-resourced nonprofits will say they can’t afford it, but this is a “you can’t afford not to have it” scenario. This post was particularly timely because I personally know of a situation where a co-op pre-school’s board just terminated their head of school in a very clumsy and ill-informed fashion, and I don’t think those board members are aware they could be held personally liable if the terminated employee decides to sue.

By: Douglas Rice

Douglas Rice — Sun, 18 Mar 2018 15:06:08 +0000

I would second the need to read the policy carefully. Some policies only cover directors and officers for legal actions BROUGHT while they are in office, whereas you need one that covers them for events OCCURRING while they are in office, even if they the actions are brought after they leave. I have also seen policies (for companies with little or no US presence) that exclude coverage for anything happening in the US, which could be a problem for a US-based director (they will be the easy target for a US complaint to go after). The US is litigious compared to other countries, and coverage, especially without a US legal entity, can be quite expensive to add.

By: Harley Kaufman

Harley Kaufman — Sun, 18 Mar 2018 13:38:51 +0000

Want to really protect yourself and the other Board members? Make sure that a good insurance agent from a reputable company is on the Board!

I LOVE getting your emails, Dave. Thanks.

Harley

By: Dave Berkus

Dave Berkus — Sun, 18 Mar 2018 02:07:34 +0000

In reply to Bob Kelley.

Bob,
regarding the coverage of legal fees: Most D&O policies today DO cover legal fees. The best ones do not deduct these fees from the total coverage amount, while many combine legal costs with payout coverage to reach the maximum (after deductible in both cases.) Thanks for your excellent comments!
Dave

By: Bob Kelley

Bob Kelley — Sun, 18 Mar 2018 01:50:34 +0000

Note: D & O often does not cover legal fees. Ensure you read each policy carefully before believing you have such coverage. Also, ensuring the board is aware of cash flow management, usually with a 13 week rolling (updated weekly) cash flow forecast can provide a timely alert as to when to resign from a board. (If financial exposure is a big issue to a particular director, especially one who hasn’t yet had some major successes under their belt.). Lastly, relative to the company having the cash to actually indemnify the directors, ensure a financially savvy director conducts an audit and discussion with the company’s “controller”. (I’ve replaced one highly recommended part-time “controller”, who really didn’t understand their job. Also, remember the necessary forecasting of sales and collections requires more experienced art than just a good business education.)

However, in general, Dave’s words of experienced wisdom, resulting from being very awake in many venture situations, through many laps around the sun, is a valuable service to all of us. Thanks, Dave!