Despite a commonly held belief; Directors are human and can make mistakes. Like a tightrope walker they walk on a fine line, making decisions that could lead to huge consequences if something goes wrong. Such as redundancies, investigations or in the worst-case scenario personal injury or death (if the mistake is with regards to Health & Safety). See below example from Aviva:
Construction – Corporate Manslaughter
a director of a building company was prosecuted for corporate manslaughter after an employee fell from a roof. The employee tripped and fell against a guardrail which gave way. An investigation by the Health & Safety Executive found that the site wasn’t properly managed, the work not properly planned, risk assessments not properly completed and that work at height arrangements were inadequate.
Being in such a high-profile position can lead to them being personally held liable for these mistakes. And as such could have their own personal assets (such as their home or car) at risk to cover legal fees and/or regulatory awards.
But what is a director/officer?
Legal definitions:
Directors – “A director is the head of an organization, either elected or appointed, who generally has certain powers and duties relating to management or administration. A corporation’s board of directors is composed of a group of people who are elected by the shareholders to make important company policy decisions.” *1
Officers – an officer is a “Person who acts in an official capacity on behalf of a firm, such as a company secretary, director, executive, manager, or other individual authorized to so act.” *2
What can happen to a director?
This is where a D&O policy will step in. Situations can arise where a company Director has had legal action brought against them personally, for ALLEGED wrongful acts when serving as a director. The policy will pay/reimburse for the defence costs be it to either the director or company, depending on who paid. It will also look to cover any compensation costs for an unsuccessful defence, if legal to do so.
What is a wrongful act?
Who can bring legal action?
D&O like Professional Indemnity is written on a CLAIMS MADE BASIS and includes an element of retroactive cover, which can go as far back as companies start or a chosen date. Once a company is closed or a director leaves, it can include an element of extended reporting to cover any claims after a director has left. This is determined on a case by case basis.
What does it cover?
What will not be covered?
*1 https://legal-dictionary.thefreedictionary.com/director
*2 www.businessdictionary.com/definition/officer.html
If you have any questions or would like to discuss D&O insurance and how Omni Davis can help you find the right cover, please contact us on:
Tel: 01403 785775 or 01243 864018
Email: info@omnidavis.co.uk
