It’s Tough at the Top

You’ve made it! You’re at the top of the ladder. And let’s face it – some of those rungs were climbed up two at a time, with occasional backward slides, but you’re there! At the top. Running your own business.

So how would you feel if, through no fault of your own, you fell off that ladder and lost everything? Devastated is probably an understatement, particularly if you lost your home as well as your business.

But there is a simple way to protect yourself – with a Directors and Officers (D&O) insurance policy.

Being the director of an SME brings with it great responsibilities. You are required to act honestly and in good faith, and carry out your duties with care and skill. Even though a company has limited liability status, individual directors and officers (those with managerial/supervisory responsibilities) do not. Their liability is, in fact, unlimited.

This means that if you do not have D&O insurance in place, then personal assets, like your home, are at risk.

A bit of history

Until recently, I thought D&O insurance was a relatively new class of insurance; certainly within the last 30 years or so. But on looking into this, it seems that D&O insurance has been around since the 1930s. It was developed after new laws were introduced in the USA to hold directors to account for failings such as those that led to the 1929 Wall Street Crash.

Nearly 100 years later, the need for D&O insurance has never been so great. Tougher legal and regulatory environments mean that directors face greater scrutiny of their actions. Which means you need to be fully aware of your duties and obligations.

Whether it’s health and safety, bribery laws, mergers and acquisitions, insolvency, wrongful trading, or equality in the workplace, directors are working in ever more complex environments.

Size doesn’t matter

Just because the companies that tend to hit the headlines are big corporates doesn’t mean it won’t happen to yours! All businesses carry similar obligations under the law. SMEs are subject to the same risks and regulations as their larger counterparts. In fact, smaller companies are possibly more vulnerable as they may not have in-house HR or legal teams to guide directors and staff through the myriad of rules and regulations.

Keeping up with the constant legislation changes is a full-time job – not easy when you have a business to run.

Where do claims come from?

The Companies Act 2006 sets out the main statutory requirements of a director. There are now over 200 offences for which you could be pursued for personal compensation!

Claims can come from a variety of areas, such as a breach of trust or duty, wrongful trading, neglect, accounting issues, or breaches of health and safety regulations. You don’t even need to be actively involved in the incident; if the court believes you should have known what was happening, you can still be held accountable. Your employees may not always follow the rules, which means you are exposed to the consequences of their mistakes.

Clearly, it would be astute to protect yourself and your company. Especially as that protection is so simple to put in place.

The cover

Providing financial protection, D&O insurance policies are designed to cover the personal liabilities of individual directors and officers of a company against the implications of any legal action arising from their business roles. Cover includes the cost of defending a claim, and any compensation awarded.

An important part of the cover relates to Investigations.  Costly and time-consuming, Investigations can have serious financial implications for an SME. They are also becoming more frequent, with many Government bodies adopting a very pro-active approach. Investigations don’t necessarily happen because of an act of wrong-doing, or even alleged wrong-doing!

Many policies also include a free advice line, which can be invaluable.

D&O cover is usually taken as part of a Management Liability policy. As an SME, it is important that you also include Entity (company cover) and Employment Practices Liability. I will explain the importance of these covers in another blog.

Do you have D&O insurance in place?  If not, and you would like to discuss how this cover can benefit you and your business, then please call me on 01235 868535, or email [email protected] today.  Don’t leave your livelihood to chance!

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