Board of Directors Liability: 4 Claim Situations That Could Put Your Business at Risk

Those who are willing to invest their time and energy to serve on a board of directors (BOD) will find themselves rewarded for their commitment. However, in addition to the many benefits of serving, there are potential risks that can lead to costly claims for board members and the business. 

“Directors who sit on a nonprofit or for-profit board open themselves up to the potential for risk, including risk that exposes them to personal liability that they alone are responsible for if a company cannot indemnify them.” Source: Law Firm of Woodruff Sawyer.

Claim situations typically involve allegations related to a breach of fiduciary duty, mismanagement of company assets/funds, employment law issues, nondisclosure of financial information and conflicts of interest.

According to the business solutions company Enquiron, the most common claims today that can be brought against a BOD and quite possibly lead to legal action include:

  • Breach of duty – From missed board meetings to failing to take appropriate action when needed, a breach of duty takes many different forms.
  • Theft of intellectual property – Board members must stay informed regarding trends and happenings in the industry in which the business operates and serves. This is especially critical in emerging industries where developments are happening so quickly it can be easy to make mistakes.
  • Failure to follow the bylaws Bylaws are in place to ensure that everyone is on the same page – including the duties of board members. Any missteps can result in consequences, such as removal from office, as well as legal recourse and personal liability claims against a board member and the business.
  • Committing wrongful acts – Unintentional or not, allegations regarding wrongful acts can involve a wide range of situations such as defamation, misrepresentation, improper self-dealing, conflicts of interest or actions that place personal self-interest above the best interest of the business.

If you’re a business, you can better protect individuals serving on your company’s board with a directors and officers liability insurance policy. This type of insurance coverage can protect your executive members and business as well as help you attract and retain quality board members.

If you have a business in need of D&O insurance, contact the experts at Oakwood D&O. We have over 15 years of experience specializing in all aspects of management liability, with an ardent focus on D&O insurance.

To learn more, get in touch! Email Eli Solomon, CEO, at or call 323-686-7519. You can also follow Oakwood D&O on LinkedIn