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The Need for Directors & Officers Liability Insurance*

Directors are the ‘mind and will’ of the Company. They are personally and legally responsible for their own actions with unlimited liability.

Following changes to the law, Directors now have a greater personal accountability. There are over 200 statutes under which Directors can face penalties, fines, disqualification and even imprisonment.

A developing blame culture means a rising number of people are resorting to litigation against Directors and Officers. As well as regulatory bodies, the list of potential claimants include your shareholders, employees, customers, suppliers and creditors. The cost of defending an action can be substantial.

Directors and Officers Liability Insurance protects the company Directors, Officers and Senior Managers against claims arising from their decisions and actions taken whilst managing the business. The insurance policy will pay on behalf of the Director, their legal costs and expenses and civil damages awarded against them.

Entity defence cover can be arranged in addition to the Directors and Officers Liability policy, offering protection for the ‘entity’ (the company) where actions are brought against the company rather than the individual. This is very worthy of consideration following recent changes to the Corporate Manslaughter and Corporate Homicide Act.

Below are some claim examples:

Timber Product Manufacturer
HSE prosecution following serious injuries suffered by a machine operator whilst trying to clear an obstruction. There should have been a safety cut out facility stopping the machine from operating but this had been broken and disconnected.
Defence Costs Incurred £25,700

Waste Management Company
Transport Manager of a waste company prosecuted by the Crown Prosecution Service following an accident involving an unroadworthy vehicle operated by the company.
Defence Costs Incurred £15,000

Giftware Manufacturer
Contractual dispute following appointment of a website developer to design an online trading website for the company. The director concerned was not authorised to enter into the contract and the company cancelled the agreement.
Website developers claimed against the director for their costs incurred to date £48,000

Distribution company
Claim for unfair and constructive dismissal against the Finance Director of a distribution company by a former employee, alleging sexual harassment and other inappropriate activity (sending text messages out of working hours etc).
Costs £21,000

In view of recent changes in legislation and the ever expanding and onerous day-to-day requirements placed upon company Directors, we recommend that Directors and Officers liability cover is arranged.

If you would like to discuss any aspects of this article or require quotations, please contact:

Ashley Minors
Hugh J Boswell Ltd
T: (01603) 727650
E : ashley.minors@boswell-insurance.co.uk
All details were accurate at time of print, Charlotte Lord, Marketing Co-Ordinator, Boswell Insurance 01603 723581

Posted by Hugh J Boswell Ltd at 10:49 on 20-Aug-2008