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A brand new study conducted by Chubb Corp. indicates that although privately held companies are very aware of up-and-coming liabilities, many of them are significantly underinsured.

The reason behind this is because many of them believe that they are already covered through their commercial general liability policies (CGL), so they don’t feel the need to purchase the necessary insurance.

There are 5 policies that these companies often have misconceptions about: directors & officers liability (D&O), employment practices liability (EPLI), errors & omissions liability (E&O), fiduciary liability, and cyber liability.

Directors & Officers Liability (D&O)

Private company owners mistakenly believe that since they are not publicly traded, they are protected from personal lawsuits.  This is farthest from the truth. In fact, the average lawsuit against a privately owned company is approximately $700,000!

According to Chubb Corp. 27% of private companies have experienced a D&O lawsuit in the past 10 years, as compared to 33% of public companies.

Employment Practices Liability (EPLI)

No matter the size of the company, each one is susceptible to an employment practices lawsuit, and yet only 30% of them currently have a policy in place.

The problem is the division of responsibilities within each organization.  Normally, human resource departments should deal with risk management materials, rather than the people who purchase insurance.

Errors & Omissions Liability (E&O)

Chubb Corp. found that although many companies are beginning to realize the importance of E&O lawsuits, only a third of them hold E&O insurance.

And while 55% of the companies are contractually obligated to carry E&O insurance, only about half of them actually do.

Fiduciary Liability

A total of three quarters of all private companies deal with outside services for employee benefits, but only one-quarter actually have fiduciary liability insurance policies.

With Chubb Corp. predicting that 28% of private companies will plan to minimize employee benefits by the end of the year 2014, and another 25% will be involved in a major merger or acquisition, fiduciary risk will skyrocket.

Cyber Liability

Even though huge corporations such as Target and Snapchat have been hit with cyber attacks, a mere 5% of private companies hold cyber liability insurance.

The main reason for this is the confusing overlaps between cyber liability and CGL, professional, property, and media liability insurance.

Fortunately, because of the importance of protection against cyber attacks, new endorsements this year will make cyber liability a more obvious need for private companies.

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