Directors’ liability insurance

Can you afford to be without it?

Company directors are facing an increasingly litigious society. They’re coming under increased scrutiny from employees and other stakeholders, yet it’s still not commonplace to find insurance in place to protect the directors.

Directors and Officers Liability Insurance cover protects company directors against claims arising from the decisions and actions they have taken whilst managing their business. It’s worth recalling some of the responsibilities that a director has.

There’s a common law duty that requires a director to act with ‘the care an ordinary man would take in the same circumstances on his own behalf’ and with the skill expected from someone with his ‘particular knowledge and experience’. Where duties are delegated, the director is responsible for ensuring that the person to whom the duties are delegated is sufficiently experienced, reliable and honest. Directors must also act honestly, in good faith and in the best interest of the company and must ensure that they don’t have any conflict of interest.

If a director is felt to have failed in any of his duties, then a claim could come from any one of a number of third parties including shareholders, creditors, Government and regulatory bodies, employees, liquidators (in the event that the company subsequently becomes insolvent), customers and suppliers.

A recent survey has found that over a third of company directors (35 per cent) feel that they face more risks at work than they did at the same time last year. Despite this, 50 per cent of individuals questioned didn’t have any form of corporate insurance cover and only 37 per cent had personal cover.

The differences between corporate cover and personal cover are worth pointing out. Company directors who manage the affairs of a business will face risks but, usually, their company will defend a director who is being pursued. Many firms choose to protect themselves from financial exposure to risks by arranging a corporate insurance policy. Such a policy covers all of the directors on a blanket basis and acts as a first line of defence. However, if a business doesn’t have corporate insurance cover in place, and it doesn’t have the financial resources to defend the director, then that individual must fund the cost of any defence and awards personally. This is where a personal policy would help.

A personal policy provides a level of personal protection as well as crucial cover should any action be brought by the employer. An action or investigation specifically naming a director is one of the only threats to a director’s personal wealth and that’s why having this insurance protection is really important. It can be very time-consuming and costly for directors to prove their innocence, and with 90 per cent of the costs associated with claims coming in legal fees, arranging cover makes a lot of sense. £1m of cover costs in the region of £30 per month.

If you’re interested in getting a quote for directors’ liability insurance, please email Carrie

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