Directors and Officers insurance is a complex yet important cover providing legal protection for directors, senior managers and officers for claims made against them for wrongful acts they have committed, or are alleged to have committed in their company roles.
Without cover, you run the risk of being unable to defend against actions such as disqualification from your position, civil proceedings, criminal prosecution, or meet any compensation costs that arise from an unsuccessful defence.
What is a Management Liability policy?
A policy is generally formed of three sections of coverage. Directors and Officers Liability (D&O), Entity or Corporate Legal Liability (CLL), and Employment Practices Liability (EPL)
• Cover is defence based, covering the policyholder and any subsidiary companies, proving protection where a director or officer, or a company is accused of a Wrongful Act.
• The D&O section is the core coverage. Providing personal indemnification for individuals who act in the capacity as a director or officer of a company, where they are accused of wrongdoing.
• The CLL section is optional and protects the Company itself, where it incurs legal costs in defending itself or responding to a legal action against it. This section of cover often contains more restrictions or exclusions in certain areas to clarify it is not a replacement for other compulsory or more specific Insurances.
• The EPL section is optional and protects the Company where it and/or those acting for it are accused of an employment practice violation.
• Each policy section often has its own policy limit. Limits are often quoted on an Any One Claim basis (sometimes they can be quoted in the aggregate). In the event of a multiple claims from a single common event, they will be treated as the same claim and a single limit will apply.
Frequent coverage issues
• Triggers for cover – satisfying Policy wordings for ‘Claims/Wrongful Acts/Loss’
• Capacity – allegations falling outside Insureds’ standard appreciated responsibilities
• Dishonesty – challenges for all sides given the typical nature of the alleged wrongdoing
• Material changes – failures of communication with Insurers mid-term regarding acquisitions/changes of group structure/risk profile
• Attachment/aggregation of claims potentially spanning multiple years/insurers/insured entities
D&O and property
Regarding the property sector, there are a number of risks which may impact directors, senior managers and officers. In the following section we highlight some examples of common industry-specific issues, typical claims examples and triggers for making a claim.
Common issues: leases
• Landlord / tenant repairing obligations
• Service charge / use of management agent
• Reserve funds
• Obstructions in retained premises
• Section 20 notices and estate maintenance
• Poor drafting
Common issues: property management
• Director conduct
• Employment practice liability
• Discrimination under Equality Act 2010
• Fraud allegations and Economic Crime and Corporate Transparency Act 2023
• Company procedure
• Filing obligations and annual accounts
• AI and the ease of issuing a money claim online
Typical claims examples
- Claimant (C) claims that building maintenance plan is excessive and is being used to inflate price of a director’s property (which she is in the process of selling). C stops paying the service charge in protest.
- C alleges that his lease prevents any vehicles to be parked on the common parts of the estate. C use his minority shareholding to call for a vote to remove the directors and issues a claim seeking an injunction to prevent parking.
- C claims that directors are discriminating against her by failing to accept her suggestions at shareholder meetings. C makes a DSAR to the company for all her personal data.
- C alleges that a director is breaching his lease by trimming the hedges in the communal garden to save costs of appointing a contractor.
What are the triggers for making a claim?
• D&O policies will typically require notification to Insurers “as soon as reasonably practicable” of any Claim having been received by the Insured or any circumstances that “might give rise to a claim”
• Definition of Claim will not only include oral and written demands for damages and compensation, but also i) notice of intention to commence civil proceedings, ii) administrative and regulatory proceedings; and iii) section 22 notice under LTA 1987
• Important to be aware of the distinction between D&O and company entity cover as we have seen instances where claims are made against directors when proceedings should have been issued against the company - whilst we can strike out these claims, the court delays can result in directors incorrectly receiving a CCJ (County Court Judgement).
Disclosure recommendations
When it comes to either taking out a policy or proceeding with a policy renewal, it’s important to do so with time and care. For example:
• Check any statement of fact or proposal form to ensure all details, responses and disclosures are correct
• Make an enquiry of all directors to ensure there is no known and undeclared material information that Insurers are unaware of
• For small groups with multiple companies, or groups where SPV’s (or similar) are not deemed subsidiaries, providing a supplementary list of entities requiring cover or a group structure chart is very helpful
• When responding to any financial questions, or in being asked to provide financial statements, providing that response on a consolidated basis is essential for insurers to understand the complete financial picture of the organisation seeking coverage
• If the organisation is not profitable or has a negative net worth, it can be helpful to provide a helpful explanation of why this is and how the company expects to return to profitability. A company with poor financials and that insurers cannot get comfort on are more likely to be declined or have significant exclusions added to the cover
• Ongoing duty to disclose.
Want to know more?
Our specialists are on hand to share guidance, discuss your insurance requirements, or support with an existing policy. For more information on D&O Insurance and Property, visit our following resources:
