DIRECTORS & OFFICERS INSURANCE

Directors & Officers Insurance

Most businesses understand the need to protect their property, liability, transport and credit risks. Fewer appreciate how important it is to protect their directors and management teams, some of whom have never received any formal training in running a business, much less the duties required of them by law.

But with increasing scrutiny from customers, competitors, investors, regulators and the media, this is an area of risk that businesses (and their insurance brokers) should actively address.

MGB are experts in Directors & Officers insurance for businesses in most sectors and of all sizes and structures and have put together some information for our broker partners to use when talking to clients:

How MGB can help

1. Our claims team is in-house
2. We understand complicated financial information and group structures
3. We can help with risks that can be difficult to place including:

    • Offshore funds
    • SIPP administrators
    • Construction companies involved in public contracts
    • Businesses involved in asset management
    • Risks requiring significant capacity and/or reinstatements of limits
    • Cover for individual Directors/Officers

4. We are a Lloyd’s broker so we can help with unusual territories and US exposures
5. We’ll help you understand and sell D&O cover so you feel comfortable cross-selling the various covers to your clients and won’t lose out on business.

What can go wrong?

1. Directors and Officers face increasing scrutiny from regulators and government bodies for their conduct in their capacity as directors and officers
2. They and their kin can be held personally liable for their wrongful actions, even after retirement
3. Regulatory and legal frameworks are exerting increasing pressure on management
4. Whether or not a company or its directors have done anything wrong, the defence costs and time involved in dealing with claims can be crippling
5. If you don’t discuss it with your client, someone else will.

If you’re using an online portal, make sure you know what’s covered and what isn’t and that any risks specific to your client are catered for. For example, do you need (and have) cover for: Extradition Proceedings, Spousal Liability, Outside Directorship Liability or Cyber Liability? Are there any specific exclusions in the cover such as: major shareholders, single signatures, prior and pending litigation. Often the ease of use of these facilities can be outweighed by the limited cover, lack of negotiation, and inflexibility of the product.

Cover considerations

D&O provides protection for individuals against allegations of “wrongful acts” arising from the actions of directors and officers (a role with tangible managerial responsibilities) of a company. Wrongful acts can include breach of duty, breach of trust or negligence. Cover is provided for defence costs as well as any awards, damages or settlements made.
The policy is designed to cover the potentially unlimited personal liability of the company directors and officers and also provide reimbursement to the company if it has had to indemnify a director – as is often pledged in a company’s Articles of Association. D&O cover, therefore, is usually purchased by a company on behalf of its directors and officers.
Cover is normally provided on an aggregate (costs inclusive) basis but reinstatements or even limits applicable to any one claim can be available. SME businesses usually buy limits of £1m to £2m while larger companies will buy £10m or more.

Who should buy D&O?

It’s argued that every business should buy protection for its Directors & Officers although some sectors, for example Financial Institutions, companies with public contracts and companies with traded stock are more vulnerable to claims than others.
At MGB we arrange D&O and Management Liability for a wide variety of companies based in the UK and overseas, including publicly quoted and privately held commercial companies, small and large charities, insurance brokers, Financial Institutions, asset managers and sports clubs.

D&O claims

Unlike professional indemnity claims, D&O claims arise from a variety of sources, including governments, regulatory bodies, shareholders, independent third parties and staff.

Example D&O claim

An architect is a director of a company that secured a loan for its expansion before going into liquidation. The group’s lenders accuse the directors of negligently providing inaccurate statements about the financial and trading position of group entities. Although negligence-based, the claim would fall under a D & O policy (rather than the Professional Indemnity policy) because it relates to the directors acting in their capacity as such rather than the provision of their professional services. Defence costs and any settlement could be substantial.