Many dealers are asked to sit on boards of banks, charities, universities, and other entities. One critical inquiry a dealer who is asked to serve on a board should make is about directors and officers (D&O) coverage for the entity.
If a dispute occurs, a plaintiff may sue individual directors. In that case, a director will want to be sure there is D&O insurance in place to protect against personal liability. Some large institutions may self insure against D&O liability, and in that case a director should be sure that the indemnification is broad to protect the director against all potential liabilities.
A dealer who is asked to join the boards of these important institutions should be careful to make sure D&O coverage is broad and in effect.
However, what about the D&O coverage for your dealership?
If a dissatisfied employee sues the company, and includes the directors as defendants, are they covered? How about for lawsuits by customers who contend they have been cheated? Or suppliers who contend they have not been paid? Dealers may answer they are covered under their garage policy, but is that the case? Does the dealership’s garage policy provide coverage for directors and officers named as defendants in lawsuits for which the dealership is covered? More important, if there are lawsuits, or claims in lawsuits for which the dealership is not covered, for example where there are allegations of fraud against a consumer, is there nevertheless coverage for directors and officers who may be dragged into such lawsuits?
It is also important to check what kind of D&O coverage the dealership has. Perhaps there is direct coverage of directors and officers under which the insurance carrier will provide a defense for the individual and pay any adverse verdict or settlement amount. Or does the coverage provide for reimbursement to the company for indemnifying directors and officers? In that case, there should be a broad indemnification provision ensuring the company will be responsible to cover all costs of defense and indemnification for a claim against a director or officer.
Check with your insurance representative to be sure that directors and officers have broad coverage to protect them, if named as defendants a lawsuit.