Directors and Officers Insurance
- A company director or senior officer has a high duty of care towards clients and employees. If a claim is made against you as an individual you will be personally liable for all the damages and legal costs. It does not matter whether you are to blame for an incident or not, the cost of defending yourself can become astronomical very quickly
- The Limited status of a company may not eliminate you from claims made against your company. It is not unusual to find directors that are under the impression that their limited status covers them so they do not need Directors and Officers insurance cover. Directors cannot rely on the company indemnifying them This means that they are unintentionally putting their own personal belongings at risk.
What are a Director’s Responsibilities?
The duties of a director have been established through statutes, regulations and case law and can be broken down into the following areas:
Duty of Care and skill
- This is a common law duty that requires Directors to act with ‘the care an ordinary man would take in the same circumstances on his own behalf’ and with the skill expected from someone with his ‘particular knowledge and experience’. Where duties are delegated the Director is responsible for ensuring that the person to whom the duties are delegated is sufficiently experienced, reliable and honest.
Fiduciary Duty
- Directors must act honestly, in good faith and in the best interest of the company and must ensure that he does not have any conflict of interest.
Statutory Duty
- There are many statutes that affect the conduct of Directors and Officers including the Companies Act 1985, Insolvency Act 1986, Financial Services Act 1986, Environmental Protection Act 1990, Health and Safety at Work Act 1974, to name but a few.
What’s Covered and Why bother Buying?
- Directors and Officers Insurance is designed to protect you personally and the company itself against any claims and cover legal costs and any compensation awarded to third parties. It protects companies’ directors, officers and senior managers against claims arising allegations of negligence from their decisions and actions taken whilst managing their business.
- At present D & O insurance could not be more important as a rapidly increasing amount of professionals are coming under increased scrutiny from employees, shareholders and other stakeholders to act in the best interests of the company and comply with their strict statutory duties.
- There are various different acts, rules and regulations that companies have to abide by. Claims you are likely to face could be:
Health & Safety
Negligence
Sexual, racial or age discrimination
Wrongful dismissal
Wrongful Trading
Breach of copyright
Data Protection
Unpaid Taxes
Environmental Damage
Who could bring a claim against you?
If a Director is perceived to have failed in any of his duties then a claim could come from any one of a number of third parties including:
- Auditors
- Creditors
- Customers
- Employees
- Government and Regulatory Bodies
- Investors
- Liquidators
- Shareholders
- Suppliers
Some Claims Examples
Mergers and Acquisitions– Following takeover the acquired company’s shareholders commenced legal action against its former directors alleging that they were misled about the terms of the acquisition.
Mergers and Acquisitions – Following the sale of a division of the company the acquirer commences legal action against the Directors alleging that some aspect of the activities and performance of the former division had been misrepresented to them.
Liquidation – Following a bankruptcy filing the Directors are accused of wrongful trading by the Department of Trade and Industry.
Environmental – Following the spillage of a pollutant proceedings are brought by the Environment Agency against the Directors.
Health and Safety – Following an accident resulting in the death of an employee it is established that there were breaches of Health and Safety procedures, as a consequence the Managing Director, who has been identified as the ‘Controlling mind and will’ of the Company, was prosecuted for Corporate Manslaughter.
Employment Practices – An employee takes action against you for sexual harassment or discrimination or wrongful dismissal.
The Changing Environment
Some Points to Consider:
- Regulation is increasing -There is a greater awareness on the part of third parties of the duties and responsibilities of a Director
- Cyber crime – Directors responsible for IT Security need to think hard about personal liability for a breach
- Shareholders and other third parties are becoming more aware of their rights . Think about RBS and Tesco – more actions are coming.
- Lawyers are now able to act on behalf of plaintiffs on a no win no fee basis.
- Bribery and anti – corruption laws and mechanisms for reporting concerns are starting to see more incidents being seen by enforcement agencies. Whistleblowing more prevalent
Steve Green
Director
