Business Insurance can be a dreary subject but it is a fundamental requirement of any business looking to mitigate their risk and protect their assets. It is easy to think about your material assets – your office, your contents, your equipment, even your data – but have you considered protecting the assets of the individuals who run the company – namely, the Directors?
Directors, or managers, can, and do, make mistakes, and are often held personally legally liable for them. They make tough and complex decisions with potentially huge impacts, such as during the stressful period of a merger or acquisition, or when they are faced with ever changing regulation in an increasingly litigious society.
Under the Companies Act 2006 there are well over 200 offences for which a director in the UK can be held personally liable.
Directors and Officers Insurance (D&O) provides financial protection for individuals in respect of claims brought personally against them arising out of alleged wrongful acts made in their capacity as Director/Officer/Supervisor or Manager. These wrongful acts include, but are not limited to:
- Breach of Trust
- Breach of Duty
- Misleading Statement
- Wrongful Trading
As a director you will have specific duties and responsibilities relating to your position – to employees, members of the public, investors, and regulators, and if you are to act outside of these duties, criminal, civil or regulatory proceedings can be brought against you.
Your D&O insurance is a defence policy – it covers the cost of defending you during these proceedings, and should the defence prove unsuccessful, it will pay out, up to your purchased limit, any compensation costs incurred. If you do not have adequate insurance protection in place, you would face a greater risk of being unable to defend yourself and use your insurance limit for:
- Mitigation costs
- Civil fines and penalties
- Personal Liabilities for corporate taxes
- Reputational expenses
- Investigation and pre-claim enquiry costs
- However, it is important to note that the area that is NOT covered by a D&O policy is liability arising from the director’s dishonest, fraudulent or criminal conduct, and it will not indemnify for criminal fines or regulatory penalties.
Potential claimants can come from a number of different directions – below just shows the most common areas from which a claim can arise:
WHERE A CLAIM MAY BE MADE
REGULATORS – alleged breach of health and safety, data protection, competition law, corporate manslaughter, wrongful trading – just to name but a few!
EMPLOYEES (PAST OR PRESENT) – sexual harassment, wrongful termination, age, race or sex discrimination, non-payment of wages
CUSTOMERS – contract disputes
SUPPLIERS – misrepresentation
COMPETITORS – libel/slander, infringement of intellectual property
Examples of D&O claims:
Directors of a company that has gone insolvent have been accused of wrongfully trading whilst insolvent
The directors of a refuse company are facing mass legal action from local residents who have accused them of causing bad smells to the local area and not taking the appropriate action.
If you want more advice in regards to Directors and Officers Insurance and assistance in putting the best policy in place to protect your business leaders, then Vantage Professional Risks are well placed to ensure your business and its leaders are adequately covered and protected. Contact us for more information.