Following are just a few examples of the damage that a single independent director liability suit can cause.

Breach of Fiduciary Duty

A nonprofit organization providing housing for the disabled was sued by the parent of a group of adult disabled children for breach of fiduciary duty. After a jury trial and an appeal, the parents were awarded a judgment in excess of $3 million. Since the organization's D&O insurance limits of liability were exhausted, each independent director of the nonprofit's board of directors was required to contribute toward judgment.

Financial Mismanagement

Country club members filed suit against the country club after the club's directors and officers neglected to renew an option to extend the rent-free lease of the land it used for its golf course. As a result of this omission, the landowner required the club to either purchase the land for more than $10 million or to lease the land for a substantial price. The suit was settled for $2 million. Defense costs exceeded six figures. Since the country club's primary insurance limits were exhausted and no excess insurance had been purchased, its independent directors were required to pay a portion of the legal costs.   

Conflict of Interest/Bad Faith/Breach of Fiduciary Duty

Five former independent directors of an athletic shoe retailer were required to pay more than $41 million from their own funds to settle a lawsuit that charged conflicts of interest, bad faith and breaches of fiduciary duty. The costs of this securities class action lawsuit and criminal and SEC investigations, which stemmed from allegations of accounting fraud, had exceeded the company's D&O policy limits. A settlement was reached after the company filed for bankruptcy and bankruptcy trustees filed suit against the independent directors. This settlement was one of the largest of its kind.