Directors & Officers Liability

Directors of all companies are now held, at an unprecedented level, to be personally responsible for any actions and decisions they make on behalf of the company - putting their personal assets at risk if those decisions are tested in the courts.

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. To protect the personal assets of individuals and, crucially, to cover the costs of their defence, Directors & Officers Insurance is widely used.

Furthermore, Directors & Officers Insurance can extend to protect the company itself, if entity cover is included, rather than leaving it to fund its own defence, thereby acting as a mechanism that also protects the value of a director's personal holding in the company.

Current insurance policies will not simply insure directors and senior managers, but will also extend to protect all other employees too.

How does the insurance policy operate?

The basic cover provided by the policy is in two parts:

firstly, the insurer will indemnify (reimburse) any director, officer or employee for their liability for any wrongful act , and

secondly, the insurer will indemnify the company itself where it has reimbursed a director, officer or employee for such liability.

Wrongful act has a wide definition under a Directors & Officers policy and will include any actual or alleged breach of duty, trust, neglect, error, misstatement, omission or breach of authority committed by a director, officer or employee.

The policy period is usually 12 months and is underwritten on a "claims made" basis meaning that the insurance responds to claims first made against the company/employees during the policy period.

The policy will pay up to the Limit of Indemnity, which is an annual aggregate limit, and a deductible or excess may be applied to each claim.

Statutory Exposures (Typical)

- Companies Act (over 200 offences)
- Insolvency Act ("Wrongful Trading")
- Health & Safety at Work Act
- Data Protection Act
- Consumer Protection Legislation
- Company Directors Disqualification Act
- Financial Services Act
- Company Securities (Insider Dealing) Act
- EC Directives and Regulations
- Racial & Sexual Discrimination Legislation

Taking into account the exposures highlighted, a Director has to be mindful of all these when considering the following circumstances which quite often give rise to claims or legal proceedings

Circumstances

- Sale of Assets/Divestments
- Acquisitions/Investments
- Poor performance
- Share Issues/Change of share ownership
- Expansion Plans or Rationalisation
- Liquidation
- Failure to supervise
- Adverse publicity
- Dishonesty of fellow directors
- Safety and emergency regulations

For further information or a quotation call Quadris Insurance Brokers on:
0208 144 1271 or email us insure@quadrisinsurance.co.uk