It is a common misconception that legal expenses or professional indemnity insurance provide all the cover needed for these smaller companies. A recent Data monitor survey found that only 23.3% of respondents had D&O cover, down from 26.7% the previous year.
Risk management can be lacking in smaller firms as they can rarely afford the same risk management systems and resources as seen in larger corporations. This can make them more vulnerable to errors.
Even if someone has been involved in running a limited liability company for years without a problem, their personal assets could still be at risk. Any director, officer or employee carrying out supervisory functions can face unlimited personal liability for actions they take on behalf of the company.
New legislation such as the UK Bribery Act 2010 puts additional responsibilities on directors to ensure their companies are not involved in bribery, holding them personally liable if they have in any way consented to the offence.
Claims against directors and officers are rising. Companies of all sizes are increasingly seen as targets for criticism, including mischievous allegations. Clients, employees and creditors are far more likely to take action nowadays against a company and its directors than in the past.
Regulators are taking a tougher stance across the globe and the risk of investigations and fines is increasing.
Legal expenses cover is not sufficient and should not be seen as an alternative to D&O, as limits are generally lower and provide for defence costs only rather than any damages awarded.
WHAT DOES D & O COVER?
A D&O policy will typically cover:
- Claims from shareholders against the management
- Employment tribunal costs (where the claim is brought against individuals)
- Health and Safety Executive enquiry costs
- Legal and defence costs
- Damages arising from employment practices and discrimination (where the individual director is found guilty)
Three notable exclusions that are not usually covered within a D&O policy are:
- Fraud – although defence costs would be covered until such a time as fraud is proven
- Pension fund liability, which can often be covered separately
- Criminal fines and penalties
For more information on D&O insurance please contact us.