Never before has Directors & Officers Insurance been so important and the time to take out cover is definitely NOW. If you are a director of a company and this cover is not in place, then you are potentially exposed to losing your home, your car, your savings – in fact all your personal assets are at risk.
With cover options in the market shrinking and premiums starting to rise, this is a policy that should be at the top of your agenda.
Myths Surrounding D&O
- My company is a limited company and therefore my liability is limited. This is the biggest myth surrounding company directors. As a director, your personal liability is unlimited so you and all your fellow directors can be held individually accountable.
- It’s only publicly traded companies or very large companies who get sued. SMEs are just as likely to be sued as corporates and if fact are possibly more vulnerable as they don’t have the benefit of inhouse legal and HR teams.
- I have other policies that will cover this. Yes Commercial Legal Expenses may provide some cover but the limits are low and reasonable prospects for success must be at least 51% for a claim to proceed. Professional Indemnity Insurance relates to situations where it is claimed that a service or advice has not been delivered to a competent standard. It does not cover allegations of a breach of director’s duty.
- It’s too expensive. Whilst premiums are beginning to rise, cover can be incepted for a few hundred pounds (depending on your turnover)
Where Do Claims Come From?
There are many potential sources of litigation that you could find yourself faced with. In fact, there are over 200 offences for which you can be personally pursued under the Companies Act 2006. Examples include:
- Failure to comply with the law or regulations eg HSE breaches
- Trading whilst insolvent
- Corporate manslaughter
- Employment practices & HR issues
- Accountancy issues
And even though the claim or allegation may be false and you are completely blameless, the costs to defend such claims can be huge. Government bodies have also been more proactive in recent years in investigating companies and there does not have to have been an act of wrong-doing to trigger an investigation. These investigations are costly and time consuming.
It’s also important to remember that you don’t have to have been involved in an incident. Sometimes even the best systems of check breakdown and employees may not always stick to the rules. Directors are exposed to the consequences of employees making mistakes and held personally accountable.
As I said at the beginning of this blog, cover options are shrinking as some insurers are withdrawing from the market – this will make placing risks harder going forward. The COVID-19 pandemic has increased risks for you as a director (please see my previous blog on this).
Unlike a Fortune Teller, you don’t have a crystal ball and can’t predict the full impact of COVID-19 on your business. At the moment, you may not be anticipating making any redundancies, sadly, however, the situation may change in 6 months’ time. Even though you have followed all procedures, there is still a risk that you may be sued for an employment practice related offence. As soon as redundancies are contemplated*, it will be almost impossible to get cover. The time to obtain cover is NOW.
Please get in touch to find out how D&O Insurance can protect you from serious financial and reputational risk.
* One of the questions asked by underwriters is related to possible redundancies in the next 12 months. In line with the Duty of Fair Presentation all known circumstances that could give rise to a claim must be disclosed prior to the inception of the policy.