Directors’ and Officers’ Liability insurance (D&O) should be an important consideration for all companies and the notes below help to explain why.

We are working in an increasingly litigious business environment with directors and senior staff at greater risk of facing the possibility of legal action being taken against them as a result of actions and decisions they have taken.

  • All sizes of company are increasingly seen as targets for criticism, which may even include mischievous allegations that could cost significant sums to defend.
  • The personal assets of a director could be at risk – liability is not limited to the value of a shareholding.
  • Legal Expenses insurance tends to have lower limits and does not cover damages awarded.
  • There are an increasing number of employment disputes.
  • The number of H&SE audits and investigations are also increasing, which can be lengthy and costly.

The intention of Directors’ and Officers’ liability insurance is to defend and protect the personal assets of directors and officers against actions taken against them by third parties, employees, H&SE etc., and to indemnify any director or officer of the company for any claim made against them for any wrongful act carried out in their capacity as director or officer.

D&O insurance can usually be extended to include Corporate Liability and Employment Practice Liability insurance, which seek to provide further protection for the company itself.

Premiums can be less than 150 a year depending on business size and limit required – a small sum to be paid by the company to protect all senior staff. 

 

For more details or to request a free quotation, please call 01527 306 041 or complete your details HERE and we will contact you.

 

Some examples of possible claims (courtesy of Travelers Insurance Co. Ltd) are shown below.

Claim Examples for Directors’ & Officers’ Liability

A small shareholder in a private company took action against its directors alleging that, over a period of several years, the directors had abused their positions by paying themselves excessive salaries but paying low dividends to the shareholders. The shareholder applied to the High Court for a review of the directors’ actions and demanded that the directors repay over £1,000,000 back to the company.

An advertising agency was successful in bringing a claim against its former managing director for diverting parts of the business and its opportunities to his new company. The court held that the managing director had misused the property of the agency, therefore breaching his fiduciary duty, that he was accountable to the company and that he should personally pay compensation to the agency.

14 directors of a privately owned delivery business were banned following the company’s insolvency and subsequent DTI investigation. Although only two directors ran the business on a day to day basis, all were found to be responsible for the books and records not being up to the necessary standards and for a lack of working capital. Considerable defence costs were incurred to defend the legal actions against the directors.

A director signed a company cheque but omitted the word ‘Limited’. The cheque was not honoured and by the time the corrected cheque was re-presented, the company had gone into liquidation. As a consequence, the managing director was held personally liable for the value of the cheque, over £30,000.

A former director of a company sued the current directors, alleging that they had conspired to deny him his correct pension benefits. The directors personally incurred costs of £36,000 defending the claim.

In October 1997 a driver fell asleep whilst driving for the family-run haulage company for which he was employed. Two motorists were killed. The court held that the operations manager should have ensured that his driver adhered to the relevant driving regulations. He had also failed to keep in close touch on these matters with his co-director. Both directors incurred substantial defence costs before being convicted of corporate manslaughter.

Claim Examples for Corporate Liability

A rival competitor sued an electrical parts manufacturer for breach of copyright after the company produced a publicity brochure advertising its services and allegedly copied the style and typeface of the competitor, who was an established leader in the field. The competitor claimed that the company was trying to confuse the public.

A shareholder brought an action against a building supplies firm as he was concerned over the way that the company was being run. The claim alleged negligence and maladministration of the company’s affairs that led to a loss in the value of the shareholding.

A company was charged with offences under the Health and Safety at Work Act 1974 in connection with a contract to remove an asbestos roof. Inadequate equipment and precautions led to contamination of the premises posing a threat to both employees and members of the public.

A health and leisure club was sued by several shareholders for loss of value, after the club announced a proposal to sell land and invest the proceeds in the business. The shareholders argued that the proceeds of the sale should be distributed to shareholders. Costs of over £25,000 were incurred in defending the claim.

The Health and Safety Executive took action against a vehicle recovery operator following discovery of several breaches of health and safety legislation which led to an employee suffering severe injuries. The company had to pay over £15,000 in costs in order to successfully defend itself.

A competitor sued a company for defamation after disparaging remarks were made by one of the company’s employees about the business practices of the competitor at a trade fair and these were then repeated in press coverage.

Claim Examples for Employment Practices Liability

A company had to compensate a female employee after they failed to agree flexible working hours on her return from maternity leave. The employee believed that she had a verbal agreement to work part-time but the employer claimed that they had only suggested possible alternative arrangements that may be available. The employee received over £4,000 in compensation plus costs.

An employee who became physically unable to do his original job following surgery won compensation £23,000 from the courts. The employee was capable of working at a desk, and despite applying for numerous such posts internally, the employer made no appointment. The court held that the employer should have made reasonable adjustments.

An office manager won compensation of £11,400 from her employer after learning that male colleagues with similar experience and skills were earning considerably more than her. The employer agreed to work with the Equal Opportunities Commission to tackle the pay differences that existed in the company.

A warehouse employee was awarded compensation after an Employment Tribunal found that he had been the subject of racist taunts, threats and abuse by colleagues over four years. Although the employer had initially been made aware of the situation it was found that they did not take adequate steps to deal with it. Consequently the employee was awarded over £45,000 in compensation.

An employee was awarded compensation for disability discrimination. He declared medical conditions at the time of appointment but was then victimised by colleagues when he could not carry out the full range of duties. The tribunal held that a proper work assessment of his needs had not been carried out and awarded compensation of £18,225.

A female employee of a car hire firm was awarded a five figure payout for sexual discrimination after a court heard of harassment and taunting from her colleagues.