These days, there is probably no such thing as a “low risk business”, at least, not if you are a company director.
And while you may be fairly confident that your company has identified the business risks it is exposed to and taken out a sensible range of insurance policies to cover them- what about the risks you run for management liabilities and claims aimed at you (rather than at the company) by disgruntled shareholders, employees, regulators or government agencies?
“It couldn’t happen to me?” you may think. Let’s just look at some of the actual claims directors can now face:
- the local fire authority brings a prosecution against directors for failure to carry out works (which would be hugely expensive) to meet fire regulations;
- an employee claims to have been harassed and undermined by the directors he reported to, leading to a large claim for unfair dismissal;
- minority shareholders claim that the directors have run the company in a way calculated to harm their interests;
- after having become a director of an overseas joint venture company, the government of the other country claims the operations breached local laws and brings extradition proceedings in the UK.
And we haven’t even mentioned health and safety liability, “corporate manslaughter” or defence against claims of wrongful or fraudulent trading.
There is a straightforward and relatively low-cost way of providing the directors – and non-executive directors (NED’s) of companies with comprehensive cover against these risks. Generally known as ‘directors and officers’ (D&O) insurance, it is almost universal among companies in the US but still not widespread in the UK.
According to Simon Leech, managing director of Perry Appleton Risk Services, a Warwickshire based specialist brokerage, “D&O cover is available at relatively low cost and provides not only protection for individual directors against legal costs, damages and settlements, but also covers the company (so-called “entity cover”) for things like breach of contract claims, environmental/pollution actions or even pension scheme challenges”.
The basic cover under the policy can be extended to employment practices liability – giving defence funding for most claims of breach of employment laws – and cover where the company has been the victim of fraud or computer hacking.
“When the company or the directors are facing serious claims”, points out Simon Leech, “the last thing they want to do is have the insurers impose a new team of lawyers on them who don’t know the business and the individuals running it. The best D&O policies now allow the directors to stick with their preferred legal team.”
It is also important to select D&O cover with separate policy limits for the company, directors and NED’s. In this way, the NED can be reassured that claims against the executive directors will not use up the funding available to defend an action against them.
And a final reassuring feature in a good D&O policy is that once the policy is up and running, it cannot be withdrawn for the innocent, even if negligent, actions of directors.
For a no-obligation chat about risk management and how we can help you and your company with your arrangements, please contact Steven Janes on 01926 880752 or Robert Lee on 01926 880741.
Wright Hassall LLP is not authorised by the Financial Services Authority. We can, however, advise on insurance matters and carry on insurance mediation activities where incidental to the legal services we provide.
