In today’s increasingly regulated and litigious business environment, directors and officers face significant risks including allegations of mismanagement, breach of duty, regulatory non-compliance or employment-related issues to name a few.
Directors and Officers (D&O) insurance is more critical than ever for businesses, protecting company directors from personal liability in the event of claims related to their decisions and actions. Without adequate cover they could be held personally liable, putting personal assets at risk.
Below are some examples from MPR Underwriting of recent management liability claims across a variety of businesses:
1) Private Limited Company
Cover Sections Operative: Company Insurance
The claimant was a former director of a subsidiary of the policyholder who was dismissed for gross misconduct. He was also a director of another company which was a supplier of raw materials to the policyholder. The claimant was alleged to have made several serious breaches under his service agreement and was in breach of the duty to act in the best interests of the directorship. Issues of allocation arose, with costs exceeding £25,000.
2) Private Limited Company
Cover Sections Operative: Directors & Officers Liability and Company Insurance
An employee was electrocuted and died. The HSE investigated and fined the policyholder. The CPS subsequently brought a charge in relation to the death. A guilty plea under Regulation 4(3) of the Electricity at Work Regulations 1989 and 33(1)(c) of the Health and Safety at Work etc. Act 1974 followed. Elements of the claim (defence costs) were covered under the Management Liability (“ML”) policy, which exceeded £50,000.
3) Private Limited Company
Cover Sections Operative: Company Insurance
A clothing manufacturer sent notice to the policyholder alleging infringement of their trademark. The claimant believed that a diamond used on skiing apparel was visually too close to their own and amounted to passing off. A cease and desist letter had to be managed by lawyers with defence costs reaching £30,000.
4) Private Limited Company
Cover Sections Operative: Company Insurance
The policyholder entered into a contract to develop a product. The contract was terminated several months later. The claimant sought a return of the money they had expended on the development costs and materials, which was refused by the policyholder. The claimant issued proceedings against the policyholder without their knowledge and a CCJ was entered, even though proceedings had not been served. The CCJ needed to be lifted and the claim defended. The breach of contract defence costs cover assisted the policyholder in appointing a high quality lawyer, with costs over £18,000 incurred.
5) Private Limited Company
Cover Sections Operative: Directors & Officers Liability
The policyholder entered into administration. It was alleged they owed money for services they had received and that a former director of the policyholder had personally assured the claimant, in front of witnesses, that he would pay any debt which the policyholder was unable to pay. The insured person denied making the statement. The appointed solicitor believed allegations made were vague and poorly articulated with no legal claim set out. Section 4 of the Statue of Frauds Act 1677 provides that a guarantee must be in writing and signed by the insured person, but the claim was aggressively pursued. The demand was successfully defended, with costs in excess of £15,000.
6) Private Limited Company
Cover Sections Operative: Directors & Officers Liability
A director, who was also a shareholder, was dismissed for gross misconduct, along with his wife, who was an employee. Along with employment tribunal claims for unfair dismissal (managed under the Employment Practices section of cover), an unfair prejudice claim under The Companies Act was filed, attempting to force the purchase of shares. On complex claims such as these, it was important to ensure a law firm with the necessary level of experience was appointed. Although costs of the claim were in excess of £250,000, these could have been much higher had solicitors unfamiliar with this type of claim managed the case.
7) Private Limited Company
Cover Sections Operative: Company Insurance
A construction firm used social media to showcase project work that they had completed. They received a letter before claim on behalf of the owner of what were alleged to be copyrighted soundtracks, seeking damages for the unauthorised use of the music. Over £50,000 was sought in damages. The Directors & Officers Liability section of cover has no inner limit on cover, but the claim was made against the entity, cover for which extends to a £100,000 sublimit on defence costs. Costs to settlement were over £35,000.
8) Private Limited Company
Cover Sections Operative: Company Insurance
The policyholder was found to have been releasing more than the permitted amounts of waste at their treatment plant. The local water authority had been monitoring the levels following a previous site visit and issued a summons in lieu of a prosecution for breach of consent. Pollution defence costs of £50,000 were incurred under the policy.
9) Partnership
Cover Sections Operative: Partners, Members, Directors & Officers Liability
Although employment claims will almost always be paid under covers for the employing entity, on occasion they can trigger D&O sections of cover. In this case, a claim brought by an employee for injury and discrimination (most typically where these triggers occur) named an individual director. Although the claim amount was £25,000, over £75,000 defence costs were paid under the policy.
10) Private Limited Company
Cover Sections Operative: Directors & Officers Liability
The policyholder received a letter of claim from their former Chairman asking for outstanding fees to be paid. The fees related to a fund raising and were documented within the board minutes, which the claimant had written himself. The minutes stated the fees were to be paid within 10 weeks of the close of the raise. However, the fundraising had taken longer than expected and was also incomplete, leading to a disagreement over payment. Costs to defend the position of the director, which was considered to be strong, still exceeded £25,000.
Having the right Directors and Officers cover ensures you can focus on your business without constant fear of legal repercussions. If you don’t already have Directors and Officers insurance in place please contact us today to learn more about the covers available to you and your business.