At a glance
- Increased legislation and scrutiny is leading to greater exposures for directors
- Directors' and Officers’ Liability (D&O) cover can protect directors against claims arising from actions made in their day-to-day duties
- Claims can be expensive, and D&O insurance can protect a company’s balance sheet as well as its reputation
“The size or type of a company doesn’t matter, a D&O claim can happen to a director in any business,” says Jim Gaskin, Head of Financial Lines (Product) for Zurich UK General Insurance. “And when they do happen, they can be expensive”
Since the global financial crisis, tougher legal and regulatory environments have meant directors face greater scrutiny of their actions. Whether it’s health and safety, bribery laws, mergers and acquisitions, insolvency, wrongful trading, corporate manslaughter or equality in the workplace, directors are working in ever more complex environments – and they need to be fully aware of their duties and obligations.
The European Union is currently overhauling its data protection laws, which means directors in the UK will increasingly be held to account over any failures of a company’s privacy and data protection policies.
“The new EU data protection directive is set to raise the profile of data protection and bring more clarity so that it’s clearer what companies will have to deal with,” says Jim.
There are also two pieces of UK legislation, which highlight some of the complex liabilities faced by company directors and officers:
What is D&O insurance and what does it cover?
Directors’ and Officers’ liability covers costs associated with the defence of an allegation of a wrongful act. This can include:
- Claims issued against a director by a shareholder
- Unfair dismissal claims
- Allegations of libel/slander
D&O policies do not generally cover an act of fraud that has resulted in a criminal conviction, or criminal fines and penalties, for example, claims against a director or officers by the company itself.
Firstly, the Bribery Act, which came into force in 2011, means that companies (and individuals) can be prosecuted for failing to prevent bribery being carried out on their behalf, inside or outside the UK, by any “associated person”, which could include an employee or a contractor.
Under the Act, companies found guilty of failing to prevent bribery face an unlimited fine and directors convicted of the same offence can be prohibited from future roles. To successfully defend themselves against such action, companies and their directors must prove they have adequate procedures to minimise the risk of bribery occurring, such as clearly communicated policies on giving or receiving of gifts and hospitality.
Secondly, under the Corporate Manslaughter and Corporate Homicide Act 2007, organisations can be prosecuted (with an unlimited fine the maximum penalty) if the failings of senior management are found to have played a significant part in the death of a person to whom the company owed a duty of care (e.g. an employee or customer).
Although punishments under the Corporate Manslaughter Act apply only to companies, directors and officers can be prosecuted separately under the health and safety or criminal law, and face substantial fines or even imprisonment. In addition, the legal costs of defending such an action can also be substantial.
Zurich cites the example of an incident in which a building company employee died after falling through a roof at work. Following an investigation by the Health and Safety Executive, one of the company directors was charged with gross negligence manslaughter and convicted. The defence costs in this case totalled £175,000.
D&O insurance can cover the legal costs of defending a director from a claim. Zurich’s coverage can also be extended to include a company’s losses resulting from a charge under the Corporate Manslaughter Act.
This rise in corporate governance is encouraging more companies to seek robust insurance coverage to protect their directors against claims and protect companies from reputational damage.
“D&O cover has never been needed more than it is today,” says Jim. “It provides indemnity, balance sheet protection and access to specialist legal help to defend a director.
“Brokers can help companies understand the underlying issue – it’s not just the company that’s at stake, it’s also the personal liability of a director. Having D&O cover can provide ‘sleep-easy’ protection for directors. D&O cover is generally competitively priced; companies could be spending £500 or less for up to £1 million worth of cover.”
It provides indemnity, balance sheet protection and access to specialist legal help to defend a director.”
Jim Gaskin, Head of Financial Lines (Product) for Zurich UK General Insurance
Because the D&O landscape is constantly changing, Zurich regularly refreshes its cover to remain relevant. Jim offers guidance to help brokers better understand the topic: “D&O cover is complex and so may not be routinely offered to customers. But this can bring opportunities –Zurich can provide indicative pricing based on name/activity and turnover and offer training in how the cover operates, including claim examples of why directors need this cover, to help brokers promote D&O cover to their existing customer base.”
For SME customers, Zurich is also making the selling of D&O as seamless as possible through ZTrade – an online solution that enables brokers to secure a quote quickly and easily for SMEs. For more information about potential schemes and portfolio transfers, contact your usual account representative or a Financial Lines underwriter in your region.