Businesspeople who are involved in lending institutions need to familiarize themselves with the directors and officers insurance coverage purchased by their institution. Serving on a Board of Directors or being an officer of a company can put your personal assets at risk of litigation due to your service.  Although directors and officers insurance is necessary to protect the leaders of any for-profit or nonprofit company, recent developments in the housing sector have made it absolutely necessary for any officer involved in issuing or managing loans of any sort.

Pre-empting Litigation

The recent flurry of bank failures has created a very tenuous atmosphere in the lending market. A lack of confidence in banks is making it more and more difficult to obtain loans.

Recently, the Congressional Oversight Panel released a February Oversight Report, which highlights that the commercial real estate market will be facing more and more difficulties in the coming year.

Between 2010 and 2014, we will see an unprecedented number of loans reaching the end of their terms. Current estimates state that $1.4 trillion in loans will be ‘underwater’, meaning that the debtor owes more to the lending company or bank than the property is worth.  Many of those borrowers are “walking away” from their loans, leaving banks and other lenders in precarious financial positions.  For those shareholders and creditors that expected to make money, not lose money, it is easy to blame the leadership of the financial institution for their financial loss.  The presumption is that the Board of Directors and Officers of the institution failed to exercise prudent judgment in exercising their duties to the shareholders. 

D&O: A Good Defensive Strategy

It’s not uncommon for borrowers or shareholders to file lawsuits against the directors of banks and private lending companies, alleging mismanagement.   These lawsuits can do serious damage to a company’s financial standing, but they will also affect the individual Board members and Officers.  An effective attorney will add as many defendants to a lawsuit as possible, and then expect the judge to dismiss those that don’t really belong.  In the meantime, the innocent defendants have to pay their own attorneys to be dismissed.  D&O insurance can help cover litigation costs that may arise due to these claims.

D&O insurance is built to protect the directors and officers of any company from having to pay exorbitant legal fees. Good D&O policies will also indemnify the directors of companies from liability.

Policies Built for Nonprofits and For-Profits

Even nonprofit organizations need to arm themselves with a strong D&O policy. The last thing you want is to be caught off-guard by litigation against the leaders of your organization.

Customize D&O insurance to fit your needs, and you will be able to manage your company with peace of mind.