Wealth Warning!

To be a Director or Officer of any company can place the individual at high personal risk.

All directors’ are considered personally liable (and, ‘joint and severally’ liable) for the proper, legal and correct performance of their duties to their companies and, unlike their companies, cannot hide behind the notion of ‘Limited Liability’ – hence the wealth warning!

Being a Non-executive director, once considered as ‘money for old rope’ and a bastion of respectability (City or otherwise), has become an onerous responsibility. It could be said that Non-executive directors are actually more vulnerable in view of their limited hands-on involvement in the business.

The Higgs report into corporate governance makes comment on the role of non executive directors & highlights the importance of Directors’ & Officers Liability insurance and actually states that a copy of the policy should be attached to the letter of appointment of each non-executive director.

There has been a continued rise in the number of claims both in terms of frequency and in amounts claimed. The main source of Directors’ & Officers Liability claims originate from shareholders, employees, competitors, customers, regulators, financial partners and sub-contractors.
There are countless offences that might result in a substantial fine or prison sentence for a director or an officer. Whilst a Director’s and Officer’s Liability policy can not provide cover against criminal activities, the cost of an innocent party defending themselves against such allegations can be ruinous and is insurable. Directors may be held to account for:

• Errors or omissions
• Misstatements
• Neglect of duty
• Breaches of trust or warranty
• Bad advice
• Discrimination
• Wrongful termination.

The coverage that is offered covers
Any actual or alleged negligent act, error, omission, misstatement, misleading statement, neglect or breach of duty by reason of their being a director and officer of the company.

There are two sections to the policy being:

Directors and Officers
Wrongful act committed in the capacity as a Director and/or Officer except where indemnified by the company.

Company Reimbursement
Wrongful acts committed in the capacity as a Director and/or Officer and only when the company is required/permitted accordingly in law to indemnify the Directors and Officers.
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