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Navigating the age of individual accountability

At a glance

  • Globally, law changes and new exposures are developing all the time, which may filter back to the UK – and brokers need to understand where, how and why claims such as these are happening
  • Unfair dismissal cases and other personnel issues are becoming increasingly common
  • Zurich’s team of experts can work with brokers to help prevent their clients getting into claims situations

As the world recovers economically, businesses are beginning to reap the benefits of an improved global outlook. However, recovery has brought with it a changed landscape in which these businesses operate. The systemic problems unearthed by the financial crisis have, in particular, resulted in a greater regulatory focus on individual accountability.

It is no longer that D&O claims are reserved for the upper echelons of management, and directors and officers lower down the chain of command are finding themselves increasingly exposed to potential claims.

Class actions against SMEs and/or against subsidiary companies to the larger ‘holding entity’ are driving more and more of these claims against firms all over the world – and honesty in everything is proving to be a critical defence, according to Mark Dowsing, Senior Claims Adjuster and Solicitor at Zurich.

“In the U.K, for instance, when the Serious Fraud Office and/or the Ministry of Justice investigate potential circumstances, we have noticed that they now tend to focus initially and go after the so-called ‘middle management’ at the SME and subsidiary company level to gather evidence against more senior board members and directors who are of the highest profile,” he says. “Any irregularities they find can cause real problems.”

Importance of correct procedure

Tell the truth. Be open. Always do the right thing. This is not just the sort of advice doled out by a parent to a wide-eyed child, but the sort of conversation brokers need to be having with their clients when advising them on how to avoid hefty D&O claims.

Everyone at a firm needs to understand why a focus on compliance and correct procedures is important – actions against unfair dismissal and other personnel issues are becoming increasingly common when things haven’t been done by the book.

Nothing stands still, either. Around the world, laws change and new exposures develop all the time – which may, in time, filter back to the UK. In Canada recently, two provincial courts certified overlapping class actions for the first time, allowing Canadian residents to be members of two class actions in two different provinces.

In Australia, new laws are creating an increase in the number of securities class actions taking place, with new plaintiff firms setting up and fanning the flames. This only goes to emphasise the importance of keeping the stock market accurately informed about earnings and, in particular, any potential differences to forecast income. This will, in turn, help ensure that potential class actions against the ‘holding entity’ are avoided (as far as possible) which often emanate from initial investigations or actions against the SMEs and/or subsidiary entity where the ‘source material’ for wider actions is gathered.

Success is about educating the insured about the importance of using the right accountant, conducting their own due diligence and ensuring HR complies fully with all necessary procedures. They need to know where their exposures are and how to defend themselves

Mark Dowsing, Senior Claims Adjuster and Solicitor at Zurich

Tight control of compliance and directors’ and officers’ disclosures at this level will ensure fewer claims of this nature against the SMEs and possibly against larger ‘holding entities’.

Brokers need to understand where, how and why claims such as these are happening, and which trends to watch before they talk to their clients – and insurers can be a key partner in this process.

“At Zurich, we want to work with brokers to help them stop their clients getting into a claims situation,” says Mark. “They need to tell their clients to be very careful about everything they disclose either to the public or stakeholders at the SME level and to the stock market at the ‘holding entity’ level, and be open and truthful in every way.

“Success is about educating the Insured about the importance of using the right accountant(s) (and external advisers and/or auditors), conducting their own due diligence and ensuring HR complies fully with all necessary procedures.

“They need to know where their exposures are and how to defend themselves.”

Image © Getty

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