Understanding Directors and Officers Liability Insurance
Explore the intricacies of Directors and Officers Liability Insurance, including coverage scope, directors' duties, potential liabilities, recent cases, and Employment Practices Liability. Learn about the evolution of D&O insurance, claims trends, and premium trends. Understand wrongful acts, Companies Act duties, disqualification risks, and other potential liabilities directors face. Delve into topics like bribery, corporate manslaughter legislation, and Health and Safety at Work regulations.
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Directors and Officers Liability and Employment Practices Liability Seminar Chris McMurray, Senior Financial Lines Underwriter (Scotland) August 2015
Agenda Background to D&O Insurance Scope of cover Directors duties and responsibilities Directors disqualification and other potential liabilities Where do claims come from? Recent D&O Cases and Claims The effect on the individual not just the entity Employment Practices Liability
Evolution of D&O Insurance What is D&O insurance? Origins of the cover Who should purchase the cover? Claims trends Premium trends
Scope of Cover D&O Side A Side B Side C Corporate Legal Liability Employment Practices Liability
Directors duties and responsibilities WrongfulAct The Companies Act 2006 sets out eight duties:- 1. Duty to promote the success of the company 2. Duty to exercise reasonable care, skill and diligence 3. Duty to exercise independent judgement 4. Duty to act within powers
5. Duty to avoid conflicts of interest 6. Duty to declare interests in proposed transactions 7. Duty to declare interests in existing transactions 8. Duty not to accept benefits from third parties
B. Directors disqualification and other potential liabilities 1. Breach of duties under the Companies Act 2006 Sections 171 to 177 2. Wrongful trading under Section 214 of the Insolvency Act 1986 if in the course of the winding-up of a company the court may declare (a company director) liable to make such contribution to the company s assets as the court thinks proper 3. Company Directors Disqualification Act 1986 - Those concerned direct or indirect in promotion, formation or management of company - Up to 15 years disqualification 4. Liability under Contract e.g. Personal guarantees, shareholders approval, pre-incorporation agreements
5. Bribery Act 6. Corporate Manslaughter/Homicide legislation 7. Health and Safety at Work, etc Act 1974, Section 37
Claims On the increase Sources Internal External
Claims Creditors Stockholders Bankruptcy /insolvency trustee Customers Subsidiary Suppliers CompanyItself ExternalClaims Internal Claims Competitors Otherinsured individuals (D&O) TaxAuthorities SocialSecurity Employees
C. Recent D&O cases & claims i. Slander - insurer paid out 26,500 under D&O policy due to comments made in public by a manager against a clothing retail customer ii. Overstated company s financial - insured paid out 10,000 under D&O policy Position after a director overstated solvency and profit levels to potential investors iii. Hefty damages award against - in ODC Securities v McGrath (2013) the High dishonest director Court awarded damages of 5 million against a dishonest director in breach of fiduciary duties iv. Three monkeys defence of - Aberdeen Sheriff awarded damages of no avail 100,000 to a liquidator against a former director who claimed to be unaware of wrongdoing taking place in case of McGregor Glazing Ltd v McGregor (2013)
v. Managing Director to repay - The Court of Session in Parks of Hamilton 50,000 (Holdings) Ltd v Campbell (2013) held that a director had been in breach of his fiduciary duties in a sale negotiation vi. Directorship defined for disqualification purposes - High Court in UKLL Limited (2013) very usefully sets out ten characteristics of de facto director 12 years disqualification imposed after losses of 70 million.
Personal Exposure Unlimited!!! The company will protect me, won t it? Personal wealth at risk!!! Is it worth the risk?
Employment Practices Liability Scope of cover Where do claims come from? Development sin EPL claims since 2008 Difference between EPL and other similar covers What underwriters are looking for
Background to EPL U.S 1980 s, UK 1990 s Stand alone policy Now in D&O forms in some part Increased claims activity
Employment practices liabilities 1. Wrongful Employment Practice 2. Wide potential scope - Defence costs and claimant s costs - Investigation costs - Awards of Damages 3. Important exceptions not covered - Criminal fines/penalties - Notice payments - Severance payments
4. Main relevant EPL legislation a) Employment Rights Act 1996 b) Equality Act 2010 c) Working Time Regulations 1998 5. Can be costly - Statutory caps on compensation of 72,400 or 52 weeks pay (whichever is lower) - No cap on discrimination awards - Interest on unpaid discrimination awards increased from 0.5% to 8% from 28/07/2013) 6. Recent case examples: a) 235,825 award in disability discrimination case (Wilebore cancer victim) b) 136,592 in an age discrimination case (Dixon : head groundsperson aged 58) c) 1 million award for institutionalised racism Browne including 5,000 aggravated damages as no employer apology d) Manner of dismissal can give rise to damages e.g. in Mark v Cann Hall PS marching teacher off premises
Claims and the Evolving Environment Claims activity increased since 2008 Recession Increased coverage Reduced deductibles Employees understanding their rights
Differences Legal expenses D&O Limits available Cover
Underwriting Employee numbers Claims activity Territories Salaries / turnover in staff etc Occupation Deducible levels Limits available
