Claims against directors and officers are becoming increasingly common and the cost of defending them can quickly run into six-figure sums. Mistakes happen and individuals will sometimes fall short of meeting their obligations in their roles but 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 D&O liability insurance policy is now an essential component of most businesses’ insurance portfolios.
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 policy can help cover insurable civil fines and penalties, providing personal protection.
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.
Claims such as unfair dismissal, harassment or failure to promote a person are increasing in frequency in the UK and a D&O policy can extend to defend the accused.
In cases where a company may be faced with insolvency, creditors may
pursue legal action against directors if they feel that the business has
It’s a common misconception that the liability sections in your company’s
commercial policies will cover a director’s alleged misconduct. These
policies will cover the company but not the individual which is why you
will need a D&O policy to protect your directors.
Another common misconception is that if you are a Private Limited Company then you don’t need a D&O 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 policy because you can be personally sued and your personal assets are at risk.
A business designed, built and installed computer systems for the oil and gas industry and had recently undergone a management buy out. A claim was bought against the company itself and a second claim was bought against the individual directors because it was alleged that they had breached clauses in the buy out agreement. Whilst the claimant was pushing hard for a court hearing, their D&O policy funded investigations and legal support which eventually led to an out of court settlement of just under £340,000.
A company operated road sweeping services using motorised vehicles and unfortunately, one of these vehicles was involved in a
fatal accident. Two of the companies 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 policy still paid out for the £118,000 defence costs and an additional £3,000 in legal expert’s costs.
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 D&O policy.
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 policy paid for, totalling of nearly £750,000.
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