The perceived wisdom is that Directors & Officers (D&O) cover is only for the upper echelons of multinationals and household names, some of whom seem to attract aggressive inbound litigation like bees to a honeypot.
Smaller companies often doubt the need and struggle to justify the cost, but as their risks multiply, they and their management teams should at least consider the ever-widening range of potential claims they could face. Not only are the risks greater, but the days when claimants stopped at just suing the company are long gone; more and more often senior executives are also in the firing line. So too are the directors and officers of even quite small businesses. With society becoming increasingly litigious, is D&O insurance really a luxury anymore?
Cyber security and data privacy
Hardly a day passes without news of some major data breach involving personal data. Businesses of all shapes and sizes were forced during the pandemic into starting up or increasing an existing online presence at breakneck speed. Inevitably some have below par data security and the potential for this leading to personal losses for customers, staff and others is alarming.
Health & safety
Damages to people and property caused by poor H&S compliance can lead to huge claims, as can Public Health or environmental incidents such as pollution from negligent disposal of commercial waste. In the worst cases, senior staff now face the very real prospect of being caught up in prosecutions against their employers for Corporate Manslaughter.
Regulatory compliance
Businesses live in a world of ever increasing regulation with an ever present risk of falling foul of rules, about which they may either be unaware or to which they have only paid lip service. The Sanctions regime introduced following Russia’s invasion of Ukraine is the latest example, but it is one where both companies and their executives face serious penalties for non-compliance.
Social media and defamation
Companies and their top management who are proactive on social media face all manner of risks in the freewheeling world of mass cyber communication. Criticising competitors or rubbishing critics are increasingly resulting in defamation claims.
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Diversity & inclusion
Allegations of discrimination all too frequently now involve individual executives as well as the companies they work for. The ongoing row over alleged racism at Yorkshire Cricket Club shows how it is not just the organisation but those who run it that are accused of misdeeds.
Shareholder claims
These will focus on management acts, which make shares fall in value and often allege financial mismanagement, a breach of fiduciary duty or some other form of prejudice caused to some or all shareholders.
Exclusions for D&O insurance
Not every claim or event will be covered by the typical D&O policy. Exclusions can include:
- Criminal or deliberately fraudulent acts
- Where there is prior knowledge of the event or a claim before taking out the policy
- Insured vs. insured claims, where one director is suing another, on the grounds of the risk of collusion
- An element of defence costs where only part of the claim is covered by D&O
Overlapping cover
Many are familiar in a domestic context with the issue where the same risk is covered by two different policies and neither insurer will pay the claim, for example a conflict between home contents and travel policies.
Some of the claim risks set out above may already be covered by other insurance carried by the company. Cyber risk could be an example, bodily injury or property damage covered by a general commercial policy might be another. Professional indemnity policies may cover certain management acts.
The takeaway from this is to make sure that risks do not fall down the cracks between D&O and other insurance cover. Setting out the cover and the exclusions for each policy side-by-side is a great way of making sure that all necessary risks are covered one way or another.
Getting expert advice for your D&O insurance
Deciding on what D&O insurance is required and which is the best insurer and policy requires expert advice. Having an experienced advisor with a broad knowledge of the D&O market to help with this exacting task is essential.
How we can help
We have extensive experience advising businesses on insurance options, and we will always work with you to find the best solution for you and your business.
One of our Partners would be more than happy to have a non-obligatory confidential chat with you. We can be contacted at rescue@opusllp.com or call us on 020 3326 6454 and we will arrange for a call with one of our Partners.