I'm about to be named a director in a medium-sized company. Should I consider purchasing directors' and officers' liability insurance?In the business world following Enron, it's natural to worry about whether you are liable for what a company does while serving on its board, said Brent Smith, an attorney with Johns, Flaherty & Collins.
The good news is Wisconsin offers immunity for most acts of directors while serving on boards of non-profits. "The idea is to encourage people to serve on the boards of non-profit organizations, where the great majority of directors are unpaid," said Smith, who is a busy volunteer on several state and local boards.
In the case of for-profit companies, Smith said liability insurance is important. Prospective or current board members could ask the company to pay the premiums since they receive little or no stipend for their service.
"I assume a medium-sized company in La Crosse would have between 100 and 200 people. Oftentimes, the company purchases coverage for board members," Smith said.
The larger the company, the more compensation a director usually gets for serving on the board. Insurance premiums could be part of the compensation package for directors.
"We know there is more exposure and more risk with a large national company so the premiums are larger," Smith said.
Protection from liability, whether provided by state law for non-profits or through insurance in the case of for-profits, does not extend to willful or malicious acts. That means if you happen to overlook something, you may not be held liable for this negligence. But if you know something illegal is going on and ignore it, you could have some responsibility.
"It's like with homeowners insurance; you are covered if someone trips on your sidewalk because you didn't shovel your walk," Smith said, "but not if you hit someone across the head because you didn't like him."
For more information about insurance, contact Brent Smith at 608-784-5678.