Directors & Officers Liability Risk

Any physician, surgeon, chief executive officer or other senior management executive that participates on a board of directors places their personal assets at risk.

In today’s litigious environment, an actual or alleged claim can be brought against an individual board member or entire organization for errors and omissions in conducting normal day-to-day, management and financial activities.

What are the common directors and officers exposures?

  • Mismanagement of finances
  • Fraudulent or improper financial reporting
  • Employment related actions
  • Conflict of interest
  • Exposures to the organization or individual by outside board participation
  • IT security breaches

Large for profit hospitals and healthcare systems are not the only organizations vulnerable to Directors & Officers liability. Small to mid-size medical practices and healthcare organizations are also at risk.

Directors & Officers claim examples

A physician assistant files an employment practices liability lawsuit against their employer alleging sexual harassment. The lawsuit also names the officers of the medical practice alleging that the board was notified of the harassment and took no corrective action.

Total damages and attorney expenses: $232,000

A Board of Directors is sued by patients whose protected health information (PHI) is exposed due to a security breach. Upon investigation it was identified that the board was aware of issues involving faulty encryption security and corrected the errors in a timely fashion. It was determined that the board of directors upheld their responsibilities and due diligence and no indemnity was awarded.

Cost to defend: $58,000

How to protect against directors and officers liability exposures

Effective risk management

  • Every officer should understand their fiduciary role as a board member
  • Understand the management structure of the healthcare organization and what the responsibilities and roles are for all senior management positions
  • Include a training program for all new board members
  • Confirm that employee and officer participation in outside board responsibilities is properly insured against risk
  • Review internal company policies that define ethical and legal standards

Directors & Officers liability insurance

  • Protects personal assets of each board member
  • Provides legal representation and pays legal defense
  • Protects the assets of the organization
  • Defends the reputation of the organization

A general liability policy insures an organization’s risk of third party bodily injury and property damage. It does not insure against alleged management errors and omissions. Decisions made by a board of directors can create liability and fiduciary exposures for the organization and themselves personally.

To learn more about your directors and officers exposures and how to mitigate that risk, please contact a Professional Risk Specialist at Smith Brothers: 860 430-3256.

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