Directors and Officers Liability Insurance
Introduction
Directors of companies have a complex and challenging job. They make difficult decisions and are subject to scrutiny for their actions. As a result they can find themselves exposed to the risk of personal, civil and criminal liability associated with many aspects of their day to day working decisions.
When a company makes a mistake, who is to blame? In recent years there has been increasing pressure to hold individuals to account. Legislation in the UK and across Europe, tightening regulation and the public response to corporate disasters all reflect this trend. The duties imposed upon directors are more onerous than ever and claims against them at an all time high. If you are a Company Director you may well find yourself in the firing line.
Who can bring a claim?
Directors and Officers in the UK can face claims from:
- Their company
- Employees (including potential and former employees)
- Shareholders
- Regulatory Bodies and Government Agencies
- Their Company’s Creditors, Customers and Suppliers
Potential areas of concern would include Directors' responsibility for ensuring that the company complies with the appropriate legislation. This could include:-
- The Companies Act 1985
- The Insolvency Act 1986
- Companies Securities Act 1985
- Company Directors Disqualification Act 1986
- Financial Services Act 1986
Other areas of exposure would include:
- Making public statements, especially those related to financial performance
- Allegations of libel and slander
- The complexities of takeovers, mergers and acquisitions
- Regulatory compliance including, for example, year 2000 compliance and disposal of harmful substances or pollutants
- All aspects of employment practice
- Trading with customers
- International commerce and competition
Indemnity from the company
Until recently companies have not generally been allowed to exempt or indemnify directors against liabilities arising from their position. This prohibition was partly relaxed by the Companies (Audit, Investigations and Community Enterprise) Act which came into force in April 2005. However, companies can still only exempt or indemnify directors in limited circumstances. There is no obligation for the company to provide the indemnity – if the board is hostile or the company insolvent, you are on your own.
The cover
A Directors and Officers Liability Policy stands behind insured directors regardless of board hostility or company insolvency. Where directors or officers are under attack, the Policy is there to defend them. The costs of defending fraud allegations, attending FSA investigations or fighting disqualification proceedings may all be covered.
In addition to protecting Directors and Officers of the company some policies can be extended to protect the Company Entity itself. This can be an important extension particularly if the Directors are also major shareholders as a loss suffered by the company will also impact on the individual Directors through reduced shareholder value. Examples would be corporate manslaughter, a regulatory issue or employment disputes.
D&O Insurance provides Directors and Officers with the resources, assurance and expertise to deal with unforeseen situations whenever they arise, providing an executive safety net. The cover provides Legal Liability to pay damages, judgements or settlements and defence costs for any claim first made during the policy period against an insured person for any wrongful act.
It is a sad fact that we are living in a more and more litigious society and that the exposures for Directors and Officers and companies are real and need to be carefully thought through. If you would like to discuss your own circumstances please contact us.
For further information or a quotation please go to the contact us page.