There are hundreds of different types of potential D&O claims. Below is an extensive – but by no means exhaustive – list of examples of such claims. They are included here for informational purposes, as illustrations to aid in the explanation of Dumont Insurance’s offerings to potential customers. This list should not be taken as legal advice. Just as every situation is unique, so are the policies we craft for each of our customers --- and the claims our customers may face.
Plaintiff made the case that a few D&Os had taken over the direction of the company, and had utilized it for their own devices to the detriment of shareholders and the company itself. These particular directors, according to the allegations, used their position to gain insider information and steer service contracts to other businesses with which they were associated, and then used their influence to shorten payment terms on the contract so that all money was paid for services in one month. They also gave significant discounts on the service contract, which resulted in lost revenue. A settlement was reached and the company paid more than $600,000.
Shareholder Derivative Action
Shareholders filed a derivative action against their company, alleging that the company’s directors breached their fiduciary duties. At the center of this suit was the contention that these defendants haven’t been forthcoming with vital information. In the claim, it was also asserted that these directors took unauthorized loans from the Board --- and that those loans were deemed re-paid, even though there were not. The company was forced to make a settlement, and the entire case ended up costing them more than $700,000.
The Plaintiff in this was the CFO in a start-up company. There was a shake-up, and Plaintiff believes that he lost his job without good cause. Even worse, he made the accusation that his ex-employer actively prevented him from finding a new job by telling potential employers that he was not allowed to use intellectual property and trade secrets which were supposedly the property of the firm. The Plaintiff filed his complaint, which alleged breach of contract as well as unfair and deceptive trade practices. The defendant ended up paying out over $150,000 in settlement and legal costs.
Misappropriation of Trade Secrets
A successful vitamin-and-supplement distributor had a meeting with the sales rep for a prospective product. The rep asked for sensitive information on various topics --- including operations, customer lists, and other trade secrets --- claiming that it was essential for her company’s logistics. The distributor agreed to supply such information under those terms. The sales rep then quickly formed a competing distribution firm in the same area. The original distributor sued. The cost to mount a defense itself against the suit was more than $500,000.
Class Action Complaint
A large group of outside investors in a particular company filed a class action complaint in which they claimed that the D&Os of this company did not disclose vital and accurate facts and information. More specifically, Plaintiffs claimed that the company did not disclose the inadequacy of company’s Information Technology (IT) department, and that several managers had been hired and fired in an unacceptably brief time frame. The firm eventually dissolved. In the complaint, causes of action were fiduciary breach, negligence, and common law fraud. The grand total for defense and settlement was more than $2,000,000.
A certified creditor alleged that the executive officers and managers of a particular company spent the funds from an improvement loan --- knowing full well that they were about to file bankruptcy. Civil conspiracy, deceptive practices, fraud, non-disclosure, and gross misrepresentation were all cause for action. The firm spent in excess of $120,000 for defense costs and settlement.
Conspiracy & Negligence
A featured performer in a very popular travelling modern acrobatic troupe filed a complaint against the ownership and management of the troupe. Plaintiff alleged that she was wrongfully terminated by the troupe after receiving permission to miss a few performances in order to visit a family member who had suddenly become ill. Nevertheless, she was suspended without pay by the troupe managers. She refused to sign the terms of her suspension, claiming that the suspension was arbitrary and violated her contract with the Troupe. Shortly thereafter, her contract was terminated.
Troupe managers argued that the performer had not received an official excuse from those performances which she missed. That, paired with her refusal to sign the terms of suspension, made the termination valid, Troupe managers also contended.
Plaintiff made the case that her suspension was arbitrary and unwarranted, and that it was done in a conspiratorial manner. She brought several causes of action, including emotional distress, interference with business, fraud, negligence, conspiracy, and breach of contract. Defense costs alone for the troupe exceeded $150,000.
Plaintiff alleged that a former employee, now on the staff of a competing company, had been using the plaintiff’s trade secrets and proprietary knowledge during employment with the competitor. He had allegedly caused severe damage to the Plaintiff’s company, and is still apparently in possession of confidential intellectual property.
The plaintiff’s cause of action against the former employee’s current employer included allegations of computer fraud, unlawful access, unfair competition, and misappropriation. Along with compensatory damages, the plaintiff sought recovery of a particular computer server and associated files, as well as several injunctions against the defendant --- including non-compete clauses, punitive damages, and legal fees. The case went to court, but both sides reached a settlement. The grand total for defense and settlement costs was more than $400,000.
Dispute Over Inventorship
A technology company that held the patent and production rights to a very lucrative, unique, and cutting-edge engineering product was sued by a man who claimed to be the rightful inventor of the device. Plaintiff was the former partner of the current owner of the technology company, and he said he had legitimate reason to say that the defendant had stolen and profited off of his rightful invention. The device had been in the process of receiving a patent, but the defendant withdrew application upon learning that the plaintiff was listed as the only inventor, and later dissolved the business relationship. Then, the defendant went ahead and created another business --- immediately applying for a patent for an identical product with himself as the only inventor. The plaintiff sued for compensation for misrepresentation, conversion, liability, fiduciary breach, and fraud. The cost to the defendant significantly exceeded $1,000,000 for defense and settlement.
Breach of Investment Agreement
Third-party investors in a company negotiated an agreement with the company where both sides agree not look into any other opportunities with any other investors for a month after the agreement. The company then violated this agreement, and the original investors filed claims against the company for misrepresentation and breach of investment. The company was forced to pay upwards of $300,000 in settlement and defense costs.
Breach of Fiduciary Duty
A financial planning company was named in a lawsuit filed by one of its clients after it was discovered that one of the company’s financial planners recommended that the client make a very risky --- and less sound --- investment only because the company gets a percentage of the investment fees. The financial planner said he did not stray from the company’s standard practice of doing business. The financial planning company did not have professional liability insurance. The plaintiff prevailed in court over the financial planning company, and the court issued a judgment of $500,000. The financial planning company spent more than $300,000 to defend itself against the suit.
Misrepresentation/Deceptive Trade Practices
A technology development corporation (owned by a few individuals) claimed to be able to develop software completely in line with a particular firm’s requirements, with regular maintenance and upgrades. The tech corporation was not on time with the software product, which was low quality and prone to crashes and lacked upgrades. Leaders at the firm decided not to pay until the tech development corporation fixed the problems. But the tech development corporation informed the firm the corporation needed the payments to remain financially in the black. The firm then filed a lawsuit alleging that the corporation had misrepresented itself as being financially stable. They claim deceptive trade practices, misrepresentation, and violation of fair dealing and good faith. After $1,000,000 worth of defense and settlement, the corporation became effectively insolvent.
After a thorough investigation, a Denver firm was taken to court by the FTC for price-fixing. Although the case was dropped due to too little evidence, court costs and fees totaled approximately $500,000.
Deceptive Trade Practices
A lumber and coal conglomerate was taken to court for the actions of its governing board. The claim alleges that the board members used their influence and advantageous positions to benefit themselves and the companies for which they worked. It also alleged that this board had been awarding contracts to cronies without receiving consideration. Several state laws are potentially violated by the alleged actions. The conglomerate spent more than $300,000 to defend itself against the suit.
A private investor filed a lawsuit against a plastic novelty manufacturer, particularly its chief executives. The investor lent the manufacturer more than $1,000,000, and claims that the manufacturer agreed to pay him back within a month. The manufacturer never repaid the investor, and the investor filed a lawsuit to recover his money. The court ordered full restitution. The company’s cost to defend itself against the suit far exceeded $150,000.
A start-up internet company was the subject of a class action suit initiated by a group of its initial investors. This group had raised more than $10,000,000 for the start-up, with an understanding that this cash was to be spent in well-defined ways. An extensive investigation revealed that the firm’s financial disclosures to the investors were significantly inaccurate --- thus, the disclosure documents were misleading and ambiguous in nature. A settlement was reached, and the startup company (defendants in the case) paid nearly $400,000.
Inadequate Financial Reporting
A former client of a tech firm claimed that this firm convinced him to write a check under false pretexts. The ex-client says that the firm misrepresented its forecasted growth rate, and did not give information about the lien on their taxes. Instead of massive growth, the company actually went into default on its initial loan. After sending a letter demanding his money back, the ex-client filed suit and prevailed in court. The cost of defense, alone, for the firm totaled $150,000.
About Dumont Insurance Corp.
Dumont Insurance Brokers Corp. – renowned for the cumulative industry knowledge, experience and insight of its staff, its close attention to customer care, and its innovative, automation-tinged model – was developed with a unique system underwritten by the most trusted and highest-rated carriers. This unique equation allows Dumont to provide customers with the very best, and most cost-effective, professional liability and E&O coverage, in spite of the ever-increasing hazards of a litigious society.