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Directors’ & Officers’ Liability

About Cover

Directors and officers may be personally liable to any party that has an interest in the affairs of the company. These parties may include shareholders, prospective shareholders, investors, employees, creditors, customers, suppliers, liquidators, and the revenue, regulators, the Government and competitors.
An officer may become liable for damages and legal costs and expenses in the event of breach of duty.
With liability well established and with increasing statutory duties and an increasingly litigious environment, the number of suits against Directors is increasing.

Who is an officer?

Officers are not limited to only company directors. Broadly speaking, an officer of a company is probably any employee or director of a company who is involved in corporate policy and decision making.

The duties of a director

Individual directors are required to exercise a reasonable degree of skill and diligence while discharging their mandate. The degree required may vary depending on the skills and experience reasonably expected of a person occupying the position of the officer and upon the circumstances of each case.

Circumstances which may give rise to a claim

Many circumstances may give rise to a dispute between a company officer and other parties including:

Employment disputes - for example, allegations of wrongful dismissal or discrimination

Negligent misstatements especially with regard to the company’s future profitability

Failure to ensure that statutory payments are made - taxation, licenses etc.

Failure to supervise those to whom responsibility has been delegated

Agreeing to excessive company borrowing

Allegation of breach of trade practice

Acting beyond the scope of authority

Making unauthorized payments

Conflict of interests

Sexual Harassment

Bad advice

What gives rise to legal proceedings?

Legal proceedings against directors and officers usually arise following certain events:

Change of control/ownership in a company

Dishonesty of a director or officer

Appointment of a receiver

Acquisitions or mergers

Boardroom disputes

Poor trading results

Why Directors and Officers Insurance

Directors can incur personal liability for breach of duty and personal liability (as opposed to corporate) is unlimited

Protection is provided for the company’s assets in respect of reimbursement of directors and officers

Directors and officers cannot rely for protection on the separate legal personality of their company

Privatization means the public are taking an interest in share ownership and company affairs

The high income levels of some directors invites legal action

Breaches of duty may have civil or criminal consequences

Lack of knowledge of the law is no defense

There is an increasing number of claims

Defense costs can be very significant

Personal assets are at risk

Premium Quotations

LIB would be delighted to obtain premium indications on your behalf. We will require some underwriting information, but for an initial indication, this can be kept to a minimum. For a formal quotation from insurers we will need to obtain:

A completed proposal form/questionnaire

The last years' annual financial reports (number of years is specified by the various insurers)

Any interim/relevant reports

Details of financial activities and any change in financial status

Premiums will depend on the industry your company operates in, the financial turnover and staff numbers, the number of directors, the level of cover you wish to buy and other factors.

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