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Mastering the D&O environment

At a glance

  • Litigious environment and new claims scenarios heaping pressure on directors and officers
  • Brokers also face risk of not advising clients about cover available
  • Zurich offers trading and technical support to brokers

An increasingly litigious environment and more wide-ranging types of claims scenarios are ramping up the pressure on directors and officers to stay out of the legal firing line.

Executive liability is a perennial threat for all companies, both large and small, and is not just the domain of highly regulated industries such as the financial services sector, pharmaceutical, or oil and gas companies.

The world of D&O insurance is often a complex area with directors and officers facing hefty costs, damages, fines and even prison sentences.

This is why Zurich recently held a series of D&O ‘master-class’ events up and down the country for the benefit of brokers, highlighting why directors and officers can be vulnerable if they are not properly covered.

“During the master-classes brokers were told of the property manager who instructed a gardener to mow the lawn across the road from one of their properties,” said Richard Walker, National Development Manager for Financial Lines at Zurich.

“It turned out that by mowing the lawn they were damaging the habitat of an endangered species and, as the director of the property management company, he ought to have known that an endangered species, which turned out to be a crested newt, lived there.

“The director was arrested and subsequently charged, and had to pay expensive defence costs. Fortunately he had good D&O cover that afforded him quality legal representation, which ultimately led to a successful defence.

“This example highlights that D&O claims can happen to any director, no matter what trade sector your business is in.”

Potentially lengthy cases

It is not just about wrongdoing, either. Any alleged misconduct can also embroil directors and officers for lengthy periods of time. It is not uncommon for cases to stretch out four or even five years – a long time for a threat to hang over an individual, not to mention the legal costs if not properly insured.

And this increased targeting of the individual instead of the company itself, which in many circumstances has far more resources to hand to fight off any charge, is one of the more significant changes to happen in the D&O sphere in recent times.

“The legal and business environment is constantly evolving and that in itself is a minefield for company directors to stay on top of,” said Richard. “It is more and more onerous and a lot of the regulatory bodies are more inclined to pursue individuals now.

“Some of the more high-profile bodies, like the new Financial Conduct Authority, have emphasised the fact that they will target company directors and hold them accountable.”

This willingness of regulatory bodies to pursue individuals is increasing, and it is becoming a big issue for company directors. It must also be noted that D&O cover is not just the preserve of the larger corporate players.

The legal and business environment is constantly evolving and that in itself is a minefield for company directors to stay on top of

Richard Walker, National Development Manager for Financial Lines at Zurich

“SMEs tend to steer away from it, and to a certain degree the smaller end of the corporates,” added Richard. “But the reality is that those SMEs and corporates require cover equally, if not more, because they don’t have the same risk management, HR and compliance infrastructures.”

Potential pitfalls for brokers

And it is not just directors and officers who should be worried. There are also the lurking dangers brokers themselves face in issuing this advice.

“Brokers need to understand what the market is able to offer so that they can adequately protect their clients,” said Richard.

“There is a potential exposure to brokers if they fail to advise their clients on a cover which could be bought for relatively low premiums. That is why we are there to support brokers with any trading and technical support they need.”

Gaining a deeper understanding and knowledge of D&O covers – not just from an underwriting point of view but also from a legal standpoint – can only help brokers when it comes to selling this type of insurance in front of their clients.

Executive Risk Solutions is Zurich’s response for a holistic management liability protection policy that offers broad and affordable cover. It’s easy to quote and bind cover, and has minimum information requirements, while dedicated D&O underwriters available in all Zurich locations are happy to answer queries and support your efforts.

Image © Getty

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