Directors and Officers Liability Insurance

Directors and Officers Liability Insurance cover protects companies' directors, officers and senior managers against claims arising from their decisions and actions taken whilst managing their business.

In a claim situation the Director’s personal assets are at risk. Directors cannot rely on the company indemnifying them. Often such an indemnity from the company will be in contravention of the Companies Act. Regardless of the stipulations of the Companies Act in the event of insolvency there will be no prospect of the company indemnifying the Directors and Officers.

The Directors and Officers Liability Insurance Policy will pay on behalf of the Director his legal costs and expenses and any civil damages awarded against him.

What are the responsibilities of Directors?  

The duties of a director have been established through common law, statutes and regulations and may be broadly classified as:

Duty of Care and Skill

A common law duty that requires Directors to act or carry out their duties with the same level of professionalism that a reasonably competent provider of those services would have used.

The standard assumes that the person carrying out the services has the 'particular knowledge and experience'. Where duties are delegated the Director is responsible for ensuring that the person to whom the duties are delegated is sufficiently competent.

Honestly

Directors have a fiduciary duty and must act in good faith and in the best interest of the company and must ensure that he / she does not have any conflict of interest.

Statutory / Regulatory Duty

There are many statutes that affect the conduct of Directors and Officers including the Companies Act 2006, Health and Safety at Work Act 1974, Insolvency Act 1986,   Financial Services Act 1986 and many others.

How Can Claims Arise?

If a Director is perceived to have failed in any of his / her duties then a claim may arise from any of these third parties: employees; shareholders; suppliers; customers; government and regulatory bodies; creditors; auditors and liquidators / administrators. 

For example: Liquidation -  upon filing for bankruptcy the Directors are accused of wrongful trading by the Department of Trade and Industry.

Health and Safety - as a result of a fatal accident of an employee the HSE establishes that there were breaches in the Health and Safety procedures and consequently the Operations Director, was identified as the 'Controlling mind' of the Company and is prosecuted for Corporate Manslaughter.

Mergers and Acquisitions - following a merger the company's shareholders commence a legal action against the Directors alleging that they were misled about the terms of the merger or the financial ramifications of the merger on the share value.  Following the sale of the company the acquirer litigates against the Directors alleging misrepresentation in the performance of the company.