Do I need it?
If you are a Company Director, we believe that this cover is vital, and here’s why.

Increasingly both individuals and organisations are prepared to enter into litigation, and you need to be aware of all the risks and your statutory responsibilities under numerous Acts of Parliament affecting the day to day running of the business. As a result of this trend, Directors are being personally sued and those who are not fully covered are open to financial risk.

Whilst it has been the usual practice for "injured" parties to litigate against Companies it is rapidly becoming more common for litigants to also take a personal action against the Director whose duties and responsibilities encompass the deed that caused the "loss".

Whilst a company’s liability could well be limited, the liability of directors and officers may be unlimited. Furthermore, Chapter 7 of the 2006 Companies Act highlights the circumstance where Companies can, if they so wish, pay legal expenses to defend individual Directors against such civil actions.

Section 234 of the Act defines where a company is allowed to make provision to indemnity a Director against liability for civil damages and awards.

The Act makes it clear that whilst the Company can pay legal defence costs to defend any criminal prosecutions brought against any Directors for breaches of their many statutory duties; in the event of the Director being found guilty then these defence costs must be repaid.

Criminal fines imposed against a Director through any criminal prosecutions cannot, in any instance, be financed by the Company.
This means that there are some circumstances where no indemnity will be granted so any defence and damages awarded may have to be funded personally.

Uninsured Directors and Officers therefore face the possibility of personal bankruptcy.

It’s important that you don’t make the mistake of thinking ‘it won't happen to me’. Directors in all Company sizes have the same responsibilities and exposure to the same risks although larger Companies will have more resources which will allow the various responsibilities to spread around the boardroom rather than fall on one individual’s shoulders. UK and EU legislation is becoming more detailed and comprehensive and has resulted in an alarming increase in litigation. A host of recent European Directives as well as a multitude of UK statutory offences impose increased liabilities on Directors and Officers. The situation becomes more complicated when the organisation has assets, representation or operations overseas. The 2006 Companies Act contains a new statutory statement of Directors duties which has a direct bearing on this issue.

Directors (whether executive or non executive) of Limited Companies are still personally liable for a variety of events that fall within their authority. These ‘events’ can lead to claims against them in areas which are covered under the following legislation:

Health & Safety at Work Act

Companies Act

Consumer protection legislation

Data Protection Act

Racial and Sexual Discrimination Act

Insolvency Act

Criminal Justice Act

Financial Services Act

Company Directors Disqualification Act

EC Directives and regulations

This is not an exhaustive list and is just an example of the many pieces of legislation that can be a minefield to Directors.

What is it?
Essentially, directors and officers insurance is a form of financial protection for Directors and Officers and extends to include all decision makers within a Company.

The policy provides comprehensive protection against the costs of defending any personal civil or criminal litigation and any civil damages that may ensue from these actions against you.

Chartis Insurance UK Ltd are a market leader for Directors & Officers Insurance and have provided us with some examples of the types of claim being made and costs involved and these are shown below

What should I do now?
Because of our wealth of experience in providing Directors and Officers Insurance advice to our clients over many years, we are able to offer individually tailored products and services for a range of situations. For an informal discussion please call us on 01325 353 888. Alternatively please email us at webenq@bibinsurance.co.uk.

Claims Examples
Director called to Public Enquiry after fatal accident

THE ISSUES:

A site workman was killed when a building collapsed following the removal of a load-bearing wall.

There were clear instructions to the effect that the load-bearing wall should not be removed.

A Health and Safety Executive investigation was commenced which resulted in a public enquiry.

A director of the company gave evidence at the public enquiry and was represented separately by his own legal advisers.

The legal advisers, by questioning the director, were able to show that he was not responsible for the load-bearing wall being removed, and in fact had given clear instructions for that work not to be carried out.

THE COVER:
Costs for the director’s representation, which were covered by the client’s Chartis D&O insurance, were in the region of £25,000.

Company probed by Environment Agency after oil spill

THE ISSUES:

An oil spill occurred into a stream next to two business premises, one of which belonged to our client.

Initially it was unclear which site was the origin of the spill.

The Environment Agency were called in and conducted an investigation into both sites.

Initial findings indicated that the spill was caused by oil leaking into the drainage from machinery on our Insured’s site.

THE COVER:
The client’s Chartis D&O policy covered defence costs for legal representation at formal interviews with the Environment Agency.
Our client was later cleared of any blame.
(Cover for accidental pollution is available under an Environmental Impairment Liability (EIL)

Trading whilst Insolvent: disqualified then prosecuted

THERE ARE TWO PARTS TO THIS CASE STUDY:
THE ISSUES:

Disqualification proceedings were commenced against directors of a UK company which had gone into liquidation.

The directors were subsequently disqualified.

THE COVER:
Cover for the directors’ defence costs was provided by the company’s Chartis D&O policy.
Costs amounted to £250,000.

PART TWO:
THE ISSUES:

Following the disqualification, the liquidator used the evidence generated by the disqualification proceedings and commenced an action against the directors.

The action concerned repayment of loans provided by the directors to the company.

The loans were repaid just prior to the company going into liquidation.

In addition the liquidator alleged that the directors continued to trade after they knew, or ought to have known, that the company could not avoid insolvent liquidation.

THE COVER:
This element of the case is still ongoing but the directors will be afforded indemnity by their Chartis D&O policy up until any finding of fraud, dishonesty or improper gain on their part.
The potential costs for this case are substantial and could easily exceed the £250,000 already paid.

Shareholders put 6 directors in the dock

THE ISSUES:

An individual made an investment of £12m in a football club for what was essentially a controlling interest following negotiations between the board of the football club and various interested parties.

The money had been required for the purchase of new players and to assist the ascent of the club in the Football League.

A claim was subsequently put forward against the company and six directors alleging that the deal caused unfair prejudice to minority shareholders.

The minority shareholders sought an order that the subscription and option be set aside or that their shares should be bought by the major investor or the football club directors at a price the court would consider just in the circumstances.

The case proceeded to trial.

The judge found that the directors had not acted with any improper purpose and that no unfair prejudice had been suffered by the minority shareholders.

THE COVER:
Although the finding was in favour of our client the defence costs, which were covered by the client’s Chartis D&O policy exceeded £500,000.

Director accused of breaching business plan

THE ISSUES:

Allegations were made against our client and one of their directors that an exclusive business distribution plan with the Claimant Company had been breached.

The claimant contested that the company has gained commercially sensitive information as a result of the exclusive agreement and then used it to their own advantage.

The pleadings contained specific allegations of intentional interference with contract, tortuous interference with business relations and trade secret misappropriation.

THE COVER:
Eventually the director was removed from the litigation but not before incurring defence costs in excess of £200,000, which were covered by their Chartis D&O policy.

Directors quizzed by SFO after overstated profit claims

THE ISSUES:

Reports suggested company profits had been overstated by over £50m over a three-year period.

Based on these reports the Serious Fraud Office (SFO) commenced an investigation into the affairs of the company.

The SFO conducted interviews with some former directors who had resigned as a result of the disclosures.

The investigation became a criminal prosecution alleging fraud.

Each director was represented by a different law firm to avoid any conflicts of interest.

Final costs in this case will exceed £10m.
THE COVER:
Chartis’ D&O policy provided cover for the advancement of costs relating to the SFO investigation.

Class action against directors after merger misrepresentation claims

THE ISSUES:

Company A entered into a merger agreement with company B.

The shareholders of company B received shares in the newly merged organisation for their company B holdings.

Later it emerged that company A had lost a number of its Y2K team shortly before the merger, a team that contributed over 20% of company A’s revenue.

Subsequent revenues for the newly merged company were lower than anticipated.

Class actions followed by company B’s shareholders alleging misrepresentation in the merger agreement, the registration agreement, the prospectus and the Proxy Statement distributed by company A.

THE COVER:
Defence costs incurred by the directors, which were covered by their Chartis D&O policy, reached in excess of $2m.

SFO question 20 staff and directors after take-over

THE ISSUES:

Our client was taken over by another company and their accounts audited.

Following the audit the accounts had to be reissued.

This had a negative effect on the share price.

The Serious Fraud Office decided to carry out investigations, which involved interviewing employees and directors under caution.

Twenty personnel from the company were interviewed by the SFO.

THE COVER:
Chartis’ D&O policy provided cover for legal costs incurred by the company personnel at the SFO interviews.
In this case our policy paid the legal fees for each employee and director to have a solicitor present at the interviews and for reasonable and necessary fees in preparing each person for the interview.
Total costs in this case were substantial.