What is Individual Director’s Liability Insurance?
Most company’s Articles of Association undertake to protect their directors should they be investigated or sued for the way in which they ran the company’s affairs. Directors Liability Insurance provides the company with the financial support to do this.
Without insurance protection a company is left to fund a director’s defence from its own resources. If the company is unable to do this then the director is left to pick up the cost from personal resources.
Individual Directors Liability Insurance is a legal defence insurance policy that provides a director with the financial assistance to fund legal defence costs, awards and damages if the company is unable to.
Who buys it?
Directors of the following forms of company can buy individual cover: Private companies, Non-Traded Public companies, Limited Liability Partnerships, Charity organisations can be covered. The key requirement is that the company must be incorporated in the United Kingdom, Guernsey, Jersey or the Isle of Man.
A policy can also cater for multiple directorship positions in up to 20 different qualifying companies and positions can be added and removed as and when required.
This form of cover can be particularly useful when an organisation has been unable (or unwilling) to arrange corporate cover or when a director leaves and is uncertain if cover will be maintained once he/she has left.
What does the policy cover?
Once a claim has been accepted the policy provides the funds to cover legal costs in defence proceedings (including extradition proceedings).
It also meets the costs of awards, damages and settlements incurred. An action or investigation must allege some form of wrongful or criminal act or omissions by a director in their role.
The policy also protects directors by paying legal representation fees for formal investigative inquiries into their conduct by governmental and regulatory bodies. Fines are not covered by the policy.
The full Policy Summary is available here
Below are a small number of actions where the defence and awards costs were covered by a Directors Liability Policy.
Health & Safety: A driver has a serious accident whilst using a mobile phone in his company vehicle. The operations manager was held responsible for not ensuring his employees were following the proper procedures for mobile phone use.
Mergers & Acquisitions: Following takeover the acquired company's shareholders commenced legal action against the former directors alleging they were misled about the terms of the acquisition.
Wrongful Trading: A creditor pursued three company directors alleging they had continued to take materials on credit knowing full well that the company could no longer meet its obligations and receivership was imminent.
Negligence: A Financial Director was asked by the board to exercise a break clause on a property surplus to requirements. He failed to action this instruction leaving the property on rent for a further five years at a cost of £400,000.
Health & Safety: Breaches of Health and Safety procedures resulted in an employee death. Several directors were prosecuted for unlawful killing by gross negligence.
Trading Standards: The directors of a manufacturing company were pursued for stamping safety glass that had not passed the necessary testing procedure.
Health & Safety: A fleet manager was prosecuted by the Crown Prosecution Service following injury caused by an accident involving a known un-roadworthy vehicle.
Negligence: A director failed to arrange death in service cover resulting in a corporate loss of £50,000.
Employment Practices: An employee takes action against a supervisor for harassment following receipt of Emails containing pornographic images. The directors were alleged to have not managed the supervisor effectively.
Environmental: The environment agency issues proceedings following pollutant spillage because of negligent premises management.
Slander: An allegation of slander was made by a customer of a retailer. Comments were allegedly made by a director that supposedly damaged the customer's reputation.