Management Liability Insurance

Claims against directors and officers are becoming increasingly common and the cost of defending them can quickly run into six-figure sums. It is important to ensure your commercial insurance package has suitable cover as mistakes happen and individuals will sometimes fall short of meeting obligations in their roles. In some cases, they can be held personally liable for their actions, meaning that their personal assets - such as cash, property and pensions - are all at risk. As a result, we recommend that a directors and officers liability insurance policy is now an essential component of most businesses’ commercial insurance portfolios.

Key Reasons to Consider Directors and Officers Insurance:

Helps protect directors’ personal assets

If a director has been accused of a wrongful act which breaches their duties, they are personally liable to defend the claim and their personal assets are potentially at risk. A D&O insurance policy provides personal protection for the individual, as it will cover any insurable civil fines and penalties.

Defending legal action

Having the right commercial insurance and risk management plan is important in mitigating potentially losses of a business. An allegation against a director will need to be investigated and defended which could lead to significant legal fees, even if the case doesn’t end up in a court hearing. Directors’ and officers’ liability insurance can cover any legal fees and protect individuals in your business.

Assistance in the event of employment practice claims

Claims such as unfair dismissal, harassment or failure to promote a person are increasing in frequency in the UK and a D&O insurance policy can extend to defend the accused.

Protection in case of insolvency

In cases where a company may be faced with insolvency, creditors may pursue legal action against directors if they feel that the business has been mismanaged. Having a tailored commercial insurance package which includes D and O insurance would protect individuals in your business from financial loss.

D&O claims are not covered under any other liability policy

It’s a common misconception that the liability sections in your company’s commercial insurance policies will cover a director’s alleged misconduct. These policies will cover the company but not the individual which is why you will need Directors and Officers liability insurance to protect your directors.

Private Limited Company status provides zero protection

Another common misconception is that if you are a Private Limited Company then you don’t need a D&O insurance policy because you are separately liable to the company. In fact, we would suggest that this is one of the main reasons that you need a D&O liability insurance policy because you can be personally sued, putting your personal assets at risk.

Claims Examples of D&O Insurance:

Management Buy-Out Disagreement

A business designed, built and installed computer systems for the oil and gas industry and had recently undergone a management buyout. A claim was brought against the company itself and a second claim was brought against the individual directors because it was alleged that they had breached clauses in the buyout agreement. Whilst the claimant was pushing hard for a court hearing, their D&O insurance policy funded investigations and legal support which eventually led to an out of court settlement of just under £340,000.

Company directors questioned over fatality

A company operated road sweeping services using motorised vehicles and unfortunately, one of these vehicles was involved in a fatal accident. Two of the company’s directors were subject to a police investigation and one was accused of aiding and abetting the causing of death by dangerous driving. The case progressed to trial, but the director was deemed too unwell, so proceedings were stayed. Even though the trial never took place, the D&O liability insurance policy still paid out for the £118,000 defence costs and an additional £3,000 in legal expert’s costs.

Breach of health and safety regulations

During a large redevelopment project run by a construction company, a massive pane of glass fell from the fifth floor of the building they were working on. Thankfully, no one was injured but the following day, the Health & Safety Executive made a site visit. A number of legislative breaches were found, and a variety of actions were subsequently brought against the company directors resulting in costs of £45,000 which were picked by their Director and Officer insurance policy.

Property developer agreement to purchase land for development without shareholder approval

The director of a property development company committed to an agreement to buy some land for development without approval from the other shareholders (fellow directors). It was alleged by one of these shareholders that the director was in breach of their fiduciary duty and had acted outside of their authority. The case was deemed unlikely to succeed after an investigation found that the board had been provided with adequate information on this particular purchase. Simply put this was a fallout between personalities with axes to grind, however, they still incurred legal costs to investigate allegations which the D&O insurance policy paid for, totalling nearly £750,000.

Directors and Officers Liability Enquiry

At A&T we understand it can be difficult to know what policies should be included in a commercial insurance package. If you are unsure about whether you need directors’ and officers’ liability insurance or if you are interested in receiving a quote for your business, please complete the form below and we will be in touch as soon as possible. Alternatively, you can give us a call on 01202 754900 or email us at mailto:info@alan-thomas.co.uk.