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Is D&O Insurance Essential?

What is Directors & Officers Insurance (D&O)?

A Directors & Officers policy covers your legal defence costs and court awards arising from the following:

  • Legal liability as a Director or Officer of the company
  • Legal costs and expenses in respect of:
  • any investigations 
  • the defence of any legal action seeking your disqualification as a Director
  • extradition proceedings (including appeals)

Claims can increasingly arise against individuals rather than against companies. For example – if someone was seriously injured at your workplace or on one of your sites, the Health and Safety Executive investigate and decide that your H&S policy/assessments are not adequate. They then begin legal action against your H&S Officer or against the Director in charge of H&S. Ignorance is of course no defence for a Director, regardless as to if they have had any direct involvement with the accident in question, the buck always stops with the Director!

D&O is a bit like Professional Indemnity Insurance, but it covers the errors and omissions of the Directors against actions bought against them as individuals, rather than against the company. A Director’s personal assets are potentially at stake for decisions they make on behalf of the company, with unlimited liability.

Examples

An advertising agency was successful in bringing a claim against its former Managing Director for diverting parts of the business and its opportunities to his new company. The court held that the Managing Director had misused the property of the agency, therefore breaching his fiduciary duty, that he was accountable to the company and that he should personally pay compensation to the agency.

Former Director of a company sued the current Directors, alleging that they had conspired to deny him his correct pension benefits. The Directors personally incurred costs of £36,000 defending the claim.

A small shareholder in a private company took action against the Directors alleging that, over a period of several years, the Directors had abused their positions by paying themselves excessive salaries but paying low dividends to the shareholders.

The shareholder applied to the High Court for a review of the Directors’ actions and demanded that they repay over £1,000,000 to the company.

What to do next?

It is our recommendation that D&O cover is essential, not optional nowadays. Solicitors will bring a claim against anyone and everyone if they think there could be a case to answer. If you would like to discuss further then please give us a call.

Call 01789 761670

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