D & O cover is widely purchased in the USA but was actually a British invention after the Wall Street crash in 1929 when it was felt that many Directors could face legal action from angry shareholders. It is estimated that as little as 10% of UK Limited Companies purchase D & O cover but there are real risks in being a Company Director or Officer who can face unlimited personal liability for their actions and decisions taken on behalf of the Company.

D & O is as relevant for small businesses as it is for large publicly traded companies. All businesses have similar obligations under the law and a claim can be brought by anyone with an interest in the company such as shareholders, regulators, employees or, in the case of insolvency, creditors, liquidators and administrators.

What does a D & O Policy typically cover?

• Claims from shareholders against the management
• Employment Tribunal costs
• Health and Safety Executive inquiry costs
• Legal Defence costs
• Legal representation expenses
• Costs for claims against heirs, spouses and domestic partners
• Damages arising from employment practices and discrimination
• Cover for prior acts

What are the Main Exclusions?

• Fraud – although defence costs would be covered until such time as fraud is proven
• Pension Fund Liability (separate cover is available for this)
• Fines or penalties

Finally, here are ten good reasons why you should purchase D & O cover:-

• The new Companies Act to come into force in 2008 now clarifies exactly what Directors are responsible for. It now clarifies exactly what Directors are responsible for and it makes it easier for shareholders to sue if they feel the business is not being run in their best interests. Companies will need to be more transparent about how their decisions affect the interests of the community, environment and their suppliers.
• Corporate Manslaughter and Corporate Homicide Bill, currently before parliament, will put further pressure on companies and could lead to a growing number of directors facing criminal action.
• Development of EU legislation – recent directives to Company Directors involve age, discrimination and the environment.
• Health and Safety Executive – more inquiries. The HSE is carrying out more audits and investigations across companies of all sizes and these can be lengthy and costly.
• Ignorance is not a defence - ignorance of decisions made by others in the Boardroom is not a valid defence.
• Personal Liability – everything could be lost. A D & O claim can pose a real threat to Directors’ personal assets.
• Risk Management can be lacking – smaller firms can rarely afford the same risk management systems and resources as large corporations which may make them more vulnerable to errors.
• Rising volume claims – companies large and small are increasingly seen as targets for criticism which may include mischievous allegations.
• Legal Expenses insurance is insufficient – this form of cover can be seen as an alternative but limits are lower and provide for defence costs only rather than damages as well.
• Family feuds – smaller firms may be in family ownership. Family disputes can lead to intra shareholder rifts.

If you have not already done so, please purchase Directors & Officers Liability Insurance now. It is not as expensive as you may think. For further information call John Girling on 0870 754 9400 or email him at john.girling@ryan-group.co.uk

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