D&O - it’s your suit of armour in the face of legal action
Many people mistakenly believe that as a director of a limited company, they have no personal liability in regard to their corporate actions.
The truth is that while most corporate bodies are protected through public liability and other insurances, the individuals within the company are often unprotected: particularly where they have acted without proper authority or breached any part of the Companies Act, however inadvertently.
For Financial Services businesses, including Credit Unions, the regulatory climate has been heating up, and directors and officers (D&Os) are increasingly in the spotlight. Greater scrutiny, changes in regulations and a more litigious society are resulting in rising claims against directors across many industries.
Changing risk environment
GDPR means data privacy is rising up the corporate risk agenda. The regulations can levy punitive fines on Credit Unions that fail to adequately protect personal information of employees or members, and it forces them to inform affected individuals of any data breach – no matter how big or small.
Directors’ personal liability can extend to losses created internally or by a supplier, and data breach events often have wider repercussions on brand reputation and member trust. Individuals, firms and stakeholders impacted by a breach are likely to come looking for someone to blame.
If a firm is unable to demonstrate appropriate ‘duty of care’ measures for employees, the board could face legal proceedings. In addition, if a company’s business continuity plans fail to work and directors cannot demonstrate that the plans were adequately stress-tested, they could face ‘lack of oversight’-type allegations.
Get your insurance policies right
Given the increasing levels of personal exposure directors now face, there has never been a more opportune moment for Credit Unions to take notice of the coverage provided for the Credit Union decision-makers under the firm’s D&O policy. In extreme circumstances, appropriate D&O Liability coverage could be all that stands between directors and personal bankruptcy.
Broadly speaking, personal claims or proceedings against directors or officers can arise from any decision made, or act carried out, in the workplace however innocuous it may have seemed at the time.
These can range from frivolous and occasionally malicious claims made by disgruntled members who weren't happy about the service they received, all the way through to official investigations. Claims and proceedings where personal liability can be involved also typically include:
Actions brought by liquidators, where they suspect wrongful trading or incorrect payments to creditors
Actions brought by HMRC, where insolvent trading or misappropriation of tax payments is suspected
HSE investigations where negligence is suspected
Police and SFO investigations where fraud is suspected
Unfair dismissal allegations
Bullying & harassment allegations
The importance of personal protection for all officers
It is important to note that while the legal definition of a director is reasonably clear, the legal definition of an officer is vague enough to allow claims or proceedings to be issued against people in almost any managerial or supervisory position.
So while you may be confident that all of your company's directors are aware of their legal responsibilities, it is vital to understand that problems can be caused inadvertently by individuals at many levels of an organisation.
The practical benefits of directors and officers insurance
Our D&O insurance ensure that in the first instance you have direct access to practical advice from our in-house claims team. If you talk to them at the first hint of trouble, they can often help you to defuse the situation; either minimising the risk of a frivolous claim being made, or by helping you to direct claims or proceedings towards the company rather than individual directors or officers.
However, should proceedings still arise, our directors and officers insurance covers a wide range of scenarios: from the legal costs and damages where actionable mistakes have been made, through to arranging and paying for legal representation throughout lengthy and expensive official investigations. We can even arrange legal representation at a Police Station in the unfortunate event of a director or officer's arrest.
In short, the protection given to directors and officers by limited company status is often less valuable than you may think. So if you don't already have D & O insurance, it is well worth talking to us about it.