Directors & Officers Liability Insurance (D&O) is now considered a crucial form of protection for all businesses, and is often a requirement before investors and board members risk their personal assets to serve your company.
Legally, the directors of a company and the company itself are separate entities and so may both be defendants, separately or jointly, in any legal action or prosecution. D&O can help to protect the personal assets of individuals and, crucially, to cover the costs of their defence.
Directors of all companies are now held, at an unprecedented level, to be personally responsible for actions and decisions they make on behalf of the company - putting their personal assets at risk if those decisions are tested in the courts.
How does D&O insurance operate?
The policy reimburses directors and senior managers against claims made against them personally. In addition, the insurance can also protect the business where the company itself is joined in the action. Cover is also provided for legal fees, professional charges and expenses incurred by an insured person who faces formal investigation by a government body into their affairs or the affairs of their company.
Where do claims come from?
New and Emerging Risks
Directors and officers are bound by complex legislation in the UK, including:
Activism by shareholders, criminal prosecutions, investigations by vigilant regulators and employment disputes are all on the rise, and even non-exec directors are feeling the pressure. It’s not just the blue-chips who need to worry – managers & directors of SMEs are exposed too.
Health & Safety
An employee is involved with a fatal accident at work. The health and safety executive and the heirs to the employee’s estate bring legal action against the company and the directors personally for compensatory damages.
A minority shareholder brought action against the former directors of a property management company after they sold it. He alleged they had failed to obtain fair value for the sale of the company and demanded the directors make good the shortfall.
Two directors were disqualified after actions by the secretary of state when financial irregularities were uncovered when the company went into receivership. The accounts were overstated prior to a public share offering, which led to an inflated share purchase price.
A competitor claims a board member has released misleading statements tarnishing their reputation. They issue legal proceedings against the company and the director individually for libel damages.
An employee accuses a director of inappropriate advances after a business dinner celebrating clinching a large contract. The employee brings the action against the director personally.
A share price plunge follows a profits warning. It is subsequently discovered there were numerous share disposals immediately prior to the announcement – all the directors face an investigation and the external shareholders sue for their losses.
If your company operates overseas, there’s also a raft of further legislation including EU directives and US securities laws. If directors make frequent business trips to the USA, adequate D&O coverage must be in place to provide legal representation & extradition protection should they be detained by US authorities.
D&O Insurance can be bought as part of a portfolio of insurance to keep your costs down.
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