The Institute of Directors recommends that you protect yourself against the risks you face in Director level roles. However without the right cover you face a number of risks, personally.
February 24, 2015
It is a common misconception that as a Director of a Limited Company, you have no personal liability for corporate actions. Whilst most businesses are protected through Public Liability and other insurances, the individuals within the company are often unprotected. For example where they have acted without proper authority or breached any part of the Companies Act.
So why does your company need Directors and Officers insurance?
Mainly because personal claims or proceedings against Directors or Officers can arise from any decision made, or act carried out, in the workplace however benign. Also, whilst it is clear who a Director is, the definition of an Officer is a grey area – covering a range of key managers.
What wrongful acts can a Director be liable for?
Broadly speaking this can cover anything from malicious claims brought by unhappy clients to HMRC and HSE investigations:
- Breach of Trust
- Breach of Duty
- Neglect – such as HSE investigations where negligence is suspected
- Error – claims by investors and shareholders who blame Directors personally for their losses
- Misleading Statements
- Wrongful Trading
- Actions brought by Liquidators, where they suspect wrongful trading or incorrect payments to creditors
- Actions brought by HMRC where insolvent trading or misappropriation of tax payments is suspected
- Police and SFO investigations where fraud is suspected
How can D&O insurance help?
At Square Mile Broking we believe in prevention rather than cure. So we advise our clients to have robust risk management processes in place and are happy to help.
However, there are practical benefits of holding D&O insurance:
- Covers the cost of compensation claims made against your business’s Directors and key managers or officers for alleged wrongful acts
- Can cover the cost of compensation claims made against them by shareholders, investors, employees, regulators or third parties
- Can cover the cost of defending proceedings, as well as any compensation costs that arise from an unsuccessful defence
- If Directors and Officers do not have insurance, they face a greater risk of not being able to defend themselves against:
- Disqualification from holding the position of Director
- Civil proceedings which can lead to hefty legal costs and awards for damages
- Criminal prosecution which can lead to fines and possible imprisonment
- It also covers claims brought in relation to:
- Breach of European legislation
- Employment practices Liability Insurance can be bought as an extension of Directors’ and Officers’ Liability Insurance. It covers employee discrimination claims, e.g. for unfair dismissal, harassment, or failure to promote a person.
What is not covered
Directors’ and Officers’ Liability does not cover claims made against your organisation as a whole, only those made against individuals for alleged wrongful acts carried out in their capacity as Directors or Officers.
What to do next?
Talk to us about the systems and processes to protect yourself and then we can help you assess the need for insurance to support your business.