Directors, officers, and senior employees of a company are exposed to a wide range of risk exposures for their actions and the decisions they make. The responsibilities and duties have been established through a mixture of statute, regulations and case law. These duties fall into three main categories:
- Care and Skill - a common law duty requires directors to carry out their duties with care
- Fiduciary - directors must act honestly, in good faith and in the interest of the company.
- Statutory - directors face an increasing array of legislation to comply with including, but not limited to, the Companies Act, Health & Safety at Work Act, Employment, Data Protection, Money Laundering, Insolvency and Fraud.
A director cannot hide behind the limited liability of the company, nor rely on the business to indemnify them. A director has unlimited liability and their personal assets are at risk.
In today’s litigious environment, the decisions made by directors are becoming challenged more often and the risk of allegations of “wrongful acts” increases, no matter how spurious, and without insurance protection the cost of the legal defence and any subsequent settlement can prove disastrous for the individual.
Who Can Bring a Claim?
A wide range of individuals and organisations can be affected by the decisions of those within a company. Some may have incurred direct financial loss as a result, others may be enforcing rules and regulations on the directors. The range of potential claimants includes : shareholders, investors, a regulatory body, HM Revenue & Customs, Health and Safety Executive, employees (past and present), customers, competitors, banks, lenders, liquidators or auditors.
A Directors’ & Officers’ Indemnity (“D&O”) insurance policy will provide financial protection to a director, officer or senior employee against claims arising from their decisions and actions taken whilst managing their business. D&O insurance can also cover the company for any indemnification it provides for wrongful acts of its officers or directors.
The insurance market offers a myriad of different D&O policy wordings and subtle differences in policy wordings can have a wide affect on the scope of cover provided. This is where expert advice from a specialist insurance broker, such as ourselves, can provide an advantage.
All policies will provide cover for damages and legal costs, with many insurer wordings expanding the scope of protection provided extras, including employment practices, crisis management, official investigation costs, retired directors and “outside” board positions.