What is D&O?
Directors and officers of companies of all sizes have certain personal liabilities which come with the fiduciary duties of their position. When directors are accused of breaching these duties, actions are brought against them personally and this can have devastating consequences for the individuals concerned, even if they have done nothing wrong. A common misconception is that being a director of a limited liability company in some way limits the director's personal liabilities. This is not the case - directors' personal liabilities are unlimited.
D&O insurance provides a pool of money for the directors of a company that can be drawn on to fund defence and settlement costs and to pay for the cost of legal representation at investigations.
Almost every large UK Company purchases D&O for their directors. The exposures are so onerous that most business people operating at this level would not accept a board or non-executive position without first reviewing the company's D&O policy to ensure that they are adequately covered. The exposures for smaller companies are just the same - the law doesn't discriminate between small and large companies - and is some respects are actually higher. Government bodies such as the DTI, HSE and SFO are increasing their focus on SMEs and the number of investigations of companies in this sector is rising rapidly.
Why should companies purchase D&O?
1. Directors' personal liabilities are unlimited and in the course of carrying out everyday duties for a company, directors are exposing themselves personally to lawsuits, investigations and criminal prosecutions. Without insurance, directors can end up having to re-mortgage (or worse), just to pay legal fees.
2. When a director needs to defend lawsuits, investigations and prosecutions, being able to draw on insurance funds to hire the best law firms in the country is going to help achieve the best possible outcome. Having an experience D&O claims team - on side can also help.
3. There are an increasing number of government bodies that can investigate a company - the DTI's Companies Investigations Branch, the Health and Safety Executive (HSE), the Serious Fraud Office, the Disability Rights Commission just to name a few - and increasing focus
on smaller businesses. Even when there is no initial allegation that a director has done anything wrong, having the funds to obtain legal representation at these investigations enables directors to gain the best possible outcome.
4. Last year:
a. Over 1500 directors were disqualified for between 2 and 15 years,
b. the DTI's Companies Investigation Branch looked at almost 5,000 companies,
c. the HSE issued over 11,000 notices and prosecuted 982 cases.
5. Convictions for corporate manslaughter could soar under the new legislation that came into force in April 2008.