Major Shareholder Exclusion – What It Means
A major shareholder exclusion is defined as an exclusion contained in some directors and officers (D&O) liability policies that precludes coverage for claims made by individuals who own a large percentage of the insured entity’s stock (typically more than 5 to 10 per cent).
Why Do Some Insurers Impose A Major Shareholder Exclusion?
The rationale for the major shareholder exclusion is that such claims are often the result of infighting or personality conflicts between the major shareholders or shareholders and management rather than being caused by managerial errors involving substantive business decisions. See also directors and officers liability insurance.
Speak to an ALIGNED Insurance Advocate about the major shareholder exclusion and other exclusions which can be found in directors and officers liability insurance.
More About Directors & Officers (D&O) Insurance
Directors and officers insurance is a type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer. Directors and officers insurance can be written to cover the directors and officers of publicly traded companies, privately held firms, not-for-profit organizations, and educational institutions. In effect, the policies function as “management errors and omissions liability insurance,” covering claims resulting from managerial decisions that have adverse financial consequences.
Directors and officers insurance (D&O) policies can contain “shrinking limits” provisions, meaning that defense costs—which are often a substantial part of a claim—reduce the policy’s limits. This approach contrasts with commercial general liability (CGL) policies, in which defense are typically covered in addition to policy limits. However, some directors and officers insurance products do provide defence costs in addition to the limit on an unlimited basis or could provide a special sublimit that is “in addition to the policy limit” that is specifically for defence costs.
A Real Canadian D&O Insurance Claim: An employee of a small, Canadian private business convinced the board of directors that he was qualified to step into the role of president of the company and he was appointed. Under his leadership, the company’s financial position substantially weakened. On behalf of the company, a shareholder sued the board of directors alleging that it used poor judgment and did not act in the best interest of the company when it appointed the new President. The case eventually settled for $1,500,000 million plus legal fees of $300,000 resulted in a $1,800,000 loss paid by the insurance company.
An ALIGNED Advocate can provide expert guidance about D&O insurance and risk management best practices for your organization. Talk to one of our advocates today about how we can help you secure the best products, services and insurance solutions for your business.
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