Protecting Company Directors

May 22nd 2018

Company directors are exposed to a wide range of risks in the execution of their duties and there is an equally wide range of insurance solutions to help protect them.

Here we look at which are the most critical and why.

Directors and Officers (D&O) insurance is considered by many as an essential cover for all companies and their directors. With increasing levels of litigation and the evolution of the Companies Act, the ability to call upon the best defence available has become ever more important.

D&O policies provide insurance for negligent acts, omissions or misleading statements committed by company directors and officers of a company that result in litigation. Cover is available for a number of scenarios: to reimburse the company when it indemnifies directors or officers; to specifically cover directors or officers when the company doesn’t indemnify them; and to provide entity protection to cover claims made specifically against the company. It is important to note that D&O insurance only covers a wrongful act of a director of the company and it excludes employment related activities.

Many confuse D&O with Errors and Omissions Insurance (E&O) and Employment Practice Liability (EPL).

E&O insurance (also known as Professional Indemnity) covers claims arising as a result of negligence in providing professional services or failing to perform professional duties. Possible sources of claims include the giving of incorrect advice and lack of care in the delivery of professional services.

EPL insurance covers claims made by employees against the company for violating their legal rights. Possible sources of claims include sexual harassment, breach of employment contract, wrongful termination, discrimination and failure to hire or promote.

Why boards and senior management need D&O:

  • Company directors, irrespective of the size or activity of the business, carry significant responsibilities in relation to the way they conduct themselves.
  • A growing number of governing bodies can investigate a company and greater attention is now focused on smaller companies.
  • Company directors and managers are jointly and severally liable; an error on the part of one can have consequences for the others, who may have acted correctly.
  • Legal action against the company and its management can involve personal liability for individuals.
  • Investigations and court cases are time consuming and expensive. D&O and EPL cover ensure that those protected have the highest quality legal representation and assistance from the start.

 

Graham Wedgbury

Account Executive

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