Real World Scenarios
Here are a few real world scenarios that resulted in the filing of D&O lawsuits:
Breach of fiduciary duty. Creditors of a company that was having some financial trouble and in need of capital, sued its directors and officers for failure to identify, evaluate, negotiate, and secure the sale of company assets in a timely manner, which resulted in the company defaulting on its outstanding loans.
Investors sued a company alleging that some of the company’s officers had personal connections to a third party contractor hired to re-tool the company’s assembly line and that they hired that contractor to further their personal interests, not the interests of the company. Other officers and directors were alleged to have either knowingly colluded with one another, or at least breached their duty of care in undertaking the project without properly investigating the qualifications of the contractor.
Failure to comply with workplace laws. A female employee was terminated and then sued the directors and officers and the company for wrongful termination based on gender discrimination.
Theft of intellectual property. A vice president left his firm to start up his own company. His former employer sued him and his new firm alleging that he took with him certain corporate licenses to market proprietary software, creating unfair competition and trademark infringement.
Misrepresentation. A company negotiated a large contract with a customer. The contract required the company to have certain financial and human resource assets in place to satisfy production and delivery requirements. The directors misrepresented the company’s revenues and capabilities and after being awarded the contract, the company was unable to meet the terms. The customer sued.
In another misrepresentation case, a retailer asked one of its suppliers to build up inventory because business was expected to increase significantly. The retailer’s business did increase, but it decided to use a different supplier. The original supplier sued the retailer alleging damages based on the retailer’s promise of more business and subsequent failure to provide that business.
Source: The Hartford, “A Look at Some Common D&O Risks & Claims” https://www.thehartford.com website. Accessed July 10, 2020. https://www.thehartford.com/management-liability-insurance/d-o-liability-insurance/risks-claims
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