Directors & Officers

The need for Directors & Officers Liability Insurance

Adequate protection

Many directors and officers of private companies aren't aware of the dangers that are open to them personally. Others believe that they are immune to attacks from employees, regulators, shareholders and creditors (at any time, even after retirement). They assume that they will be able to hide behind the so-called corporate veil to allow their company to deal with any allegations of mismanagement.

In reality directors and officers of private companies carry a personal risk of financial ruin from actions brought against them rather than their company. Should a claim be made against a director or officer of a company, they are responsible for meeting the costs of defence and any settlement awarded against them if the action is successful. Where a company is able to protect the financial assets of a director or officer they still need to transfer the risk off the balance sheet by purchasing adequate D&O cover.

Below you will see examples of claims against directors and officers and how they can be held personally liable for their actions in the conduct of day to day business. They emphasise the value of holding adequate D&O insurance - which Northern Counties can provide to best suit your needs:

Health & Safety Breach 1

A 15 year old employee of an electrical contractor in his first week of work was left unsupervised for a short period and was badly injured by a piece of factory machinery due to lack of experience. The director faced the threat of prosecution by the HSE for alleged failure to operate proper health and safety procedures.

Outcome

The charge against the director was dropped and the HSE pursued the company. However legal costs of preparing the defence for the director of £1,370 were picked up by the D&O policy.

Health & Safety Breach 2

An engineering firm employee was injured using an unguarded press resulting in the amputation of 2 fingers.

Outcome

The HSE requested that the Site Manager (officer of the company) attend an interview under caution requiring a legal defence-the costs of which stand at £5,000 and has been picked up by the active D&O policy whilst the investigation continues. * Not all HSE investigations solely involve the company and the director / officer responsible for health and safety in the workplace may be investigated.

Sexual Harassment

A complaint was made by an employee against a director seemingly prompted by the director 'whistle-blowing' on a specific issue which resulted in suspension of the employee for gross misconduct.

Outcome

The case was settled out of court with settlement and costs able to be met by the D&O policy.

Slander 1

An allegation of slander was made by a customer against the manager of a clothing retailer. Comments were allegedly made by the manager in public, which supposedly damaged the reputation of the customer.

Outcome

A threat was made to take the manager to court unless settlement was forthcoming. The settlement negotiated to £36,500 was covered under the D&O policy.

Unfair Dismissal

An unfair dismissal case was brought against the director of an engineering company who failed to follow proper procedures in the dismissal of an employee. The complaint alleged that the basis for dismissal was unrelated to any workplace activity and was to do with a personal contract between the director and the employee.

Outcome

The matter was settled out of court with the policy contributing towards legal costs of £3,050 as subsequent settlement costs.

*Smaller firms face the greatest challenge in dealing with employment affairs. They tend not to have the same level of resource or internal expertise to deal with situations correctly and to the satisfaction of employment tribunal disputes as larger enterprises do.

Sale of a Company

The sale of a PR firm resulted in allegations that the company had been overvalued and that the directors had not provided accurate information.

Outcome

A £2,000 settlement figure was agreed and covered by the D&O policy that the PR company had put in place. Even where advisers are used in the sale of a company it is the ultimate responsibility of the directors to provide accurate information.

Share Transfer

A loan of £100,000 was made to a financially troubled company by the wife of one of the directors in exchange for a share transfer from the fellow directors. This loan was intended to prevent the receivership of the company and the share transfer was allegedly agreed by the other directors. The loan was made, but the shares did not materialize and the financial position of the company worsened meaning that the loan could not be repaid.

Outcome

The wife of the director sued the fellow directors for misrepresentation. The D&O policy in place met the subsequent legal defence costs of the fellow directors.

Broken Agreement

The directors of a company in financial difficulty had entered into an agreement with a supplier, for customers' money to be paid directly to them so as to avoid the insured's bank gaining control of the money. It is alleged that the agreement was broken and that the money received by the insured was not passed on to the supplier, but used by the bank to service the debt.

Outcome

The insured company went into liquidation and 3 directors faced High Court action-the supplier seeking £500,000. The amount was eventually settled at £200,000 and was covered under the D&O policy.
* Often when companies go into receivership it is the directors that face claims and allegations from a variety of sources including creditors. It is then that the D&O policy is needed and so should not be cancelled on receivership, to protect the directors from claims made after the company has gone into receivership.

To find out more about D&O cover, whether you need it and how much it will cost you simply call us during office hours on 0191 482 1219 or use the facility above to request a quote.

Northern Counties - Providing people and businesses with protection and peace of mind since 1928