The Power of Directors & Officers Insurance
The trouble with certain insurance policies is their title doesn’t really explain what it is that’s covered. Directors & Officers (D&O) or Management Liability doesn’t give you much of a clue of the vast protection provided by these relatively new policies. We are going to try and illustrate The Power of Directors & Officers Insurance.
D&O Insurance protects:
Individual Directors & Officers
The Company and Organisation
Directors, officers, senior staff are covered for their personal accountability, the personal liability of the individual. Put in the simplest of terms…
Directors & Officers protects individuals from legal COST & PRISON
Exposure to individual liability is increasing year by year. Whether it be from government bodies, employees or creditors. Directors are in the firing line from anyone who is seeking personal legal action against individuals who they see as guilty. Claims can come emerge from a vast array of ever present modern risks such as Health and Safety Legislation, Data Protection, Employment and Bankruptcy. Claims from both internal and external sources can lead to criminal tribunals or civil litigation and of course huge financial costs. Individuals face the loss of personal assets along with their reputation. While a Limited company has limited liability, the exposure to an individual is only limited by their wealth, their ENTIRE wealth!!
The Health & Safety Executive have great success directing claims at individuals. In fact, we believe, actions against individuals have increased by 3 Times in recent years. Their focus on individuals makes sense as the result of a successful prosecution achieves strong headlines and sends a clear message to an industry or business sector. The resulting ‘peer fear’ heightens awareness and quickly drives other individuals to improve their businesses. A win win for the government body.
Do we need Directors & Officers Insurance?
Small businesses might think they are under some kind of radar but there are just as vulnerable as large companies. In fact, SME’s are generally an easier target especially if they are without D&O Insurance.
Government controls are increasing in terms of the operation of companies and conduct of individuals. The 2006 Companies Act read more highlights directors and management responsibilities and duties while at the same time places a clear target on directors’ and management’s backs allowing others to attack them.
- Anyone can take a Company Director to the Civil Court over a breach of Civil Liability
- Government Agency (e.g. HSE) can commence criminal proceedings against a Company Director through the Criminal Court
It is a worrying fact that where a Criminal Court has to find a director guilty of the charged offence ‘beyond all reasonable doubt’, a Civil Court case will be awarded against the director ‘on the balance of probability’.
How does Directors & Officers Insurance protect us?
A good D&O policy will provide you with a Directors & Officers lawyer. These guys are specialists in protecting individuals and firms. Even a criminal lawyer isn’t as specialist as an insurance company appointed D&O lawyer.
Cover will indemnify individual directors and officers and provide corporate reimbursement for any claim made against the individual director or officer for WRONGFUL ACT in their capacity of director, officer or employee.
Cover includes costs and legal expenses for individuals in preparation for attendance at official and professional investigations.
On occasion it is prudent for the company to instigate an independent internal investigation. This certainly looks good in the eyes of any attacking government authority. The costs of this investigation are paid for by the insurance company.
What is (can be) covered?
Defence Costs and Legal Representation for Directors, officers and employees against:
Breach of duty or trust
Negligence, Error or Omission
Misrepresentation, Misstatement or Misleading Statement
Libel Slander – Defamation
Health & Safety and Corporate Manslaughter
Employment Practice Wrongful Act
Violation of Companies Act or Bribery Act
Shareholders derivative actions
ANY MATTER WHERE CLAIMED AGAINST AN INSURED PERSON WHILST IN THE CAPACITY OF AN INSURED PERSON
Past and Future Directors
Bail and Civil Bonds
Corporate Tax Liability (personal liability of directors)
Bodily Injury and Property Damage (claims directed to individuals)
This is just a typical example of the cover available from the current UK insurance market.
What limit of cover should we buy?
That’s a difficult question to give one answer to. However, perhaps consider the absolute total value of your wealth and then buy protection sufficient to cover that sum……
It is possible to obtain low limits of cover for D&O but we would suggest the extra cost to obtain more meaningful and relevant cover isn’t much more.
What’s the cost?
You might be surprised with how low D&O insurance premiums are. Typically, we see a SME with a turnover of £1 to £5M paying around £500-750 for an annual policy with a limit of £1,000,000.
Contact us if you have any questions or you think you might like Directors & Officers Insurance.