Directors and Officers (D & O) Insurance

Management Risks Insurance can be complicated to understand. Here is some information which may help clarify. Directors and Officers of Limited Companies, Associations, and of course Trustees of Charities are subject to the law of the land, even if they may give their time freely and for no reward. They still have a duty of care and can be held accountable! Much of this information applies to Charities, not for profits Companies and Companies Limited by Guarantee also.....

Management Risks of running an organisation include...

Directors and Officers Liability
Employers Legal Protection covering Tribunals and other legal action
Pension Fund Trustees
Charities / Associations for their day to day decisions and activities
Crime

Directors & Officers - subjects under consideration here....

1. Duties and Responsibilities of office
2. Directors Roles - when you define these, the exposure to claim becomes clearer
3. Potential Claimants-
4. Protection without Insurance?
5. Why buy D&O insurance ?- Directors cannot escape responsibility
6. Who & what is covered?

1. Directors and Officers Duties

To Manage Prudently Honestly & Diligently within their authority and Memorandum & Articles of Association
They have three main duties:
1. Fiduciary - act honestly, in good faith and what they consider to be the best interests of the company
2. Care & Skill - common law requires D&O’s to carry out duties with the “care an ordinary man would take …” and the skill expected from someone with “particular knowledge & experience”
3. Statutory - statutes that impose duties:

2. D&O ’ s Role - All in a Years Work!

Directors and Officers can be involved in a wide varity of decisions and situations, such as...

Sale of Assets
Corporate Performance
Share Issue/Flotation
Expansion Plans
Supervision
Man-Management
Dishonesty of Others
Acquisition/Investments
Liquidation of Sub Cos
Financial Restructuring
Downsizing
Health & Safety
Contingency Planning
Public Relations
Pressure Groups
MBO’s

3. Potential Claimants could be...

Shareholders
Fellow Directors
Suppliers/Customers
Employees
Pressure Groups
Financial Institutions
Vendors/Purchasers
Competitors
Creditors
Government
Dept.Trade & Industry
Customs & Exercise
H&SE

Many claims settled “ out of court ” with substantial legal costs incurred

4. Protection without Insurance?

Directors will still be vulnerable because of...

The Companies Indemnity Provision

- which is incompatible with Company’ s Act 1985 (s.310)

- insolvent companies do not relieve personal liability of Directors

Company’ s Act & Relief from the Courts. (s.727)

-Directors to escape liability must have been seen to be acting “ honestly, reasonably and fairly ” but all three provisions must be present to avoid being pursued

5. Why Buy D&O Insurance ?

Current indemnity provision of the organisation to protect Directors etc is Not wide enough
A Director is Personally accountable for his/her actions
Cannot Hide behind the limited liability status of the company
Cannot Rely on being able to pass on liability to professional advisors
All Personal Assets (house, car, savings investments etc) are at Risk

6. Who is Covered ?

Directors
Officers
Employees (Managerial/Supervisory)
External Appointments (at discretion of Insured)
Spouse/Children/Estate

6. What is Covered ?

Protect D&O’s against personal financial loss resulting from a Wrongful Act
Reimburse the Company where it is permitted or required by law
Legal costs and expenses in defending a claim (civil or criminal)
Costs and expenses for attending official investigations, disqualification / environmental proceedings
World-Wide Jurisdiction
Shareholder Actions
Automatic Acquisition for Subs
Associated Companies & Other Concerns
Assured - v - Assured (one director etc against another)
Current indemnity levels - £1,00,000 should be a minimum, but This will depend on the exposures and amount the organisation is handling

Claims Made So Far show that...

There are Increasing responsibilities imposed on D&O’s, Employees, Trustees and Entities
There is Increasing litigation and publicity
There is a landscape of Spiralling legal costs, damages & awards
Losing a case can lead to loss of personal assets, lifestyle and even liberty
These classes should now be considered as important as the Property/Liability, Motor etc.

To receive further information via email or post or if you would like us to phone you, click here .
Or phone the Commercial Department on 01684 893006 Option 4 or email commercial@balens.co.uk