Directors and Officers insurance cover
Directors and officers of companies of all sizes have certain personal liabilities with the fiduciary duties of their position.
When directors are accused of breaching these duties, actions may be brought against them personally with devastating consequences even if they have done nothing wrong. A common misconception is that directors of limited liability companies have limited personal liabilities. But this is not the case – directors’ personal liabilities are unlimited.
D&O insurance provides a pool of money for the directors of a company that can be drawn on to fund defence and settlement costs and the cost of legal representation at investigations. Most large UK companies buy D&O for their directors. The exposures are so onerous that business people operating at this level may be wary of accepting a board position without first reviewing the company’s D&O policy.
The exposures for smaller companies are the same as they are for large ones – and in some respects are actually higher. Government bodies such as the DTI, HSE and SFO are increasing their focus on SMEs and the number of investigations of companies in this sector is rising rapidly.
Claims Scenarios
A director of a UK company was sued by one of his distributors. It was alleged that he had deliberately breached an exclusive distribution agreement and that he had used commercially sensitive information within this agreement for personal benefit. Eventually the distributor dropped the case, but not before the insurers had funded some £200,000 of defence costs.
A director was sued by a group of his shareholders for negligence after the company’s fortunes declined rapidly. After consultation with lawyers, it was decided that the best course of action was to settle out of court. The D&O insurance funded the final settlement as well as the legal costs. The sums involved would have been sufficient to personally bankrupt the director in question.
An HSE investigation into a fatality at work turned into a full-blown public enquiry which the Director was required to attend. The policy funded his legal representation at the enquiry and enabled him to demonstrate that the fatality had not arisen out of any negligence or wrongful act on his part.
Reasons why companies should purchase D&O?
- Directors’ personal liabilities are unlimited and in the course of carrying out everyday duties for a company, directors are exposing themselves personally to lawsuits, investigations and criminal prosecutions. Without insurance, directors can end up having to re-mortgage (or worse), just to pay legal fees.
- When a director needs to defend lawsuits, investigations and prosecutions, being able to draw on insurance funds to hire the best law firms in the country is going to help achieve the best possible outcome.
- There are an increasing number of government bodies that can investigate a company – the DTI’s Companies Investigations Branch, the Health & Safety Executive (HSE), the Serious Fraud Office, the Disability Rights Commission just to name a few – and an increasing focus on smaller businesses. Even when there is no initial allegation that a director has done anything wrong, having the funds to obtain legal representation at these investigations enables directors to gain the best possible outcome.
- In one year* (a) Over 1,500 directors were disqualified for between 2 and 15 years. (b) The DTI’s Companies Investigation Branch looked at almost 5,000 companies. (c) The HSE issued over 11,000 notices and prosecuted 982 cases.
- Although D&O insurance policies for large companies can cost very large sums, we can provide D&O cover for small and medium size enterprises at highly realistic and affordable premium levels.
* DTI’s annual publication on Companies provides more details.
To obtain a quotation for D&O insurance cover, simply download the form on the right hand side of the page, complete and return to us by fax, post or email.