Written by FCSA Business Partner, Caunce O’Hara & Co.
Directors and Officers have specific responsibilities, powers and duties relating to the positions they hold. Those duties and responsibilities are usually noted in their terms of reference (or job description), but when a director or officer of a business is found to have acted outside of their terms of reference, proceedings (whether criminal, civil or regulatory), can be brought against them. Such actions can be brought by employees, shareholders, investors or third parties.
Company directors and key employees should consider acquiring Directors’ & Officers’ Liability Insurance (D&O Liability Insurance). This insurance is designed to respond to cover the cost of defending proceedings brought and provide compensation costs that may arise from a defence that is not successful.
In the absence of D&O Liability Insurance directors and officers can run the risk of not being able to defend themselves against actions that, for example, could include: criminal prosecution which can lead to fines or even imprisonment; civil proceedings that could incur significant legal costs, awards or damages; disqualification from holding director status, to mention but a few.
A robust D&O Liability Insurance policy will only respond to claims made against individuals for wrongful acts and not companies as a whole. Actions brought by the Health and Safety Executive (HSE) or the Office of Fair Trading will be covered as will claims brought in relation to insolvency or breaches of European legislation. Most policies will allow extensions, most commonly Employment Practices Liability Insurance that will cover employee discrimination claims for matters such as unfair dismissal or harassment.
Wrongful acts by directors, officers and key employees are far reaching and include breach of duty, breach of trust, error, neglect, misleading statements and wrongful trading. D&O Liability Insurance is becoming more relevant as company board members consider the complex and litigious world they operate in. It’s a specialist area of insurance and independent advice from a qualified and regulated insurance professional should always be sought.