Common Lawsuits That Can Have An Affect on Directors

You may be under the impression that only corporations that are large and public will face Director & Officer lawsuits (also known as “D&O lawsuits”), but you need to know that any business or non-profit organization that has an advisory committee or a corporate board–whether they’re a large or small one–can face one of these common lawsuits. 

Anyone who is in the position of a director or corporate officer is very much at risk of being sued for actions that are taken or performed while they are in this position, and these types of lawsuits are, in fact, so common, that many businesses frequently purchase D&O coverage to protect their personnel from liability in the event of a lawsuit.

Direct Suit Lawsuits for Common Lawsuits

Direct Suit lawsuits are often brought about by a shareholder class action, either by an individual or a group of similarly-situated shareholders that are alleging personal harm. Suits of these kind can be filed for many different reasons, but some of the most common are, but are not limited to:

  1. Demand for payment of dividends that were promised.
  2. A shareholder’s right to vote has been violated.
  3. A shareholder’s ownership rights have been violated or harm has been done to a specific shareholder.
  4. A shareholder has been denied the ability to inspect records.

Derivative Lawsuits

If shareholders are concerned with the action of corporate officers or directors, they may choose to file for what is known as a “derivative lawsuit.” This is an action that is brought about on the corporation’s behalf and generally seeks to allege a breach of fiduciary duty. 

Typically shareholders will attempt to address this alleged breach before making the suit, unless there is an awareness that trying to do so would be futile on their part.

Employment Law Violations

These sorts of lawsuits are some of the most common and allege a form of violation or multiple violations of employment and/or workplace laws like hour and wage statutes, or may even allege violations of federal and/or state discrimination statutes.

The start of the “#MeToo” movement has given rise to both direct and derivative lawsuits in particular, filed against corporate officers and directors alike for an alleged role in either engaging in an alleged incident or incidents of sexual misconduct, and even for covering such incidences up or attempting to cover them up.

D&O Coverage Limitations

While Director & Officer lawsuit coverage is a commonly sought protection, it cannot protect a director or corporate officer from everything, as there are some things that this kind of coverage will not protect against. Illegal acts–even if they allegedly taken on the corporation or company’s behalf–are not protected and can include but are not limited to:

  1. Embezzlement.
  2. Stealing company or corporate resources.
  3. Lying to the government about corporate affairs.
  4. Being complicit in lying to the public.

Note that actions like these–and any action that’s against the law–will not be covered by any form of corporation or insurance. No form of insurance coverage can prevent or protect against civil or criminal penalties.

If you need further great information for your business, look no further than Thompson Law.