Do you need Directors Liability Insurance?

Philip Avery on 24/04/2012

In today’s increasingly litigious environment it is worth considering the need for Directors & Officers personal liability insurance. With recent business scandals across the world, it is clear that the responsibilities of directors and officers are mounting.

Increased shareholder activism and tougher punishment for non compliance give rise to personal exposures for directors and officers. The protection offered by limited company status is not sufficient in some cases.

Common cases include actions in relation to Health and Safety - including actions by the HSE (Health & Safety Executive) to prosecute directors for alleged failures to have proper health and safety procedures in place. Even if proceedings are not commenced the costs involved can be substantial. Just recently a director of a Cardiff-based construction company was fined for putting employees at risk over working at height.

Insolvency is another area where directors can have personal liability for example for trading whilst insolvent or improperly preferring creditors. In a recent case involving a company with two directors, one director had paid off a debt to another company in preference to other creditors. They were both held personally responsible and liable for over £400,000 of the company’s debts.

Misrepresentation is another area that can be fraught with risk. In one case a company was sold to a buyer who, some two years later, claimed against the directors for misrepresentation, issuing a writ in excess of £50 million. The directors had maintained their policy and insurers were able to arrange a settlement.

It is important to understand that cases of fraud and dishonesty are normally not covered by policies. Boards should consider taking advice from an IFA to ensure that their personal assets are as well protected as possible.

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