Directors & Officers Insurance
Directors & Officers Insurance (D&O) provides cover to protect Directors, Officers, supervisors, partners and trustees against action taken if someone feels that they have not lived upto their duties or responsibilities. D&O liability insurance also protects the company itself, rather than leaving it to fund its own defence, thus acting to protect a director’s personal holding in the company.
- The insurer will reimburse any director/officer/employee for liability for any wrongful act;
- Then the insurer will reimburse the company itself where it has reimbursed a director/officer/employee for the liability.
‘Wrongful Act’ has a wide definition and includes any actual or alleged breach of duty, trust, neglect, error, misstatement, omission or breach of authority committed by a director, officer or employee.
Typical statutory exposures:-
- Companies Act (over 200 offences)
- Insolvency Act (“Wrongful Trading”)
- Health & Safety at Work Act
- Data Protection Act
- Consumer protection legislation
- Company Directors Disqualification Act
- Corporate Manslaughter Act
- Financial Services Act
- Company Securities (Insider Dealing) Act
- EC Directives and Regulations
- Racial & Sexual Discrimination legislation
As well as covering the directors, manager, partners and trustees you can also extend the policy to cover:-
Entity Employment Practices Liability – Protection with separate, dedicated limit for the entity, directors and other employees – and featuring services designed to help organisations reduce the likelihood of potential actions.
Pension Trustee Liability – Protection for the trustees, employees, the business and the fund itself against claims brought in relation to wrongful acts involving a plan, whether actual or merely alleged.
Crime – Protecting the balance sheet from fraudulent or dishonest activities carried out by the employees or outside third parties.
Claims Examples
Breach of Contract – A company is sued by its former agents after it terminates their contracts in order to replace them with full time staff. The agents sue for non-payment of commission. Overall settlement and defence costs reached 6 figures.
Misconduct – An employee is dismissed after sending a stream of offensive e-mails to colleagues about one of his senior managers. However, the employer failed to follow proper process in dismissing the employee and the case was settled for a 5 figure sum.
Unfair Dismissal - An employee is dismissed for non-attendance even though her employer knows she is pregnant. Her employers claim that the manager who dismissed her was not aware of her pregnancy – although the company fails to reverse its decision when the employee produces confirmation from her GP. The case is settled for a 5 figure sum.
Environmental Prosecution – Under the Environmental Protection Act, directors are liable for prosecution if their business is suspected of pollution damage. In one case, charges against a director went ahead – even though the company had confirmed their tanks did not hold the contaminant identified in the adjacent stream.
Fraud – An employee who processes invoices also has access to the supplier creation system. The employee sees that when invoices are approved for payment, the financial controller examines the largest payment in detail and signs the rest. The employee creates a false supplier and makes many small payments totalling thousands of pounds over several months.
Fraud – A trusted employee has authority to select suppliers for the company. He channels a large proportion of projects to one particular supplier in return for regular cash payments of several hundreds pounds each month. The fraud is only discovered after 4 years and an anonymous tip off.
If you wish to discuss this further, please contact David McGowan on 01473 408428 or email mcgowand@wmibl.co.uk
