Appointment to an executive or non-executive position brings not only the personal prestige but may also bring potential personal liability for a negligent act. Today’s shareholders, employees, regulatory authorities, customers and creditors expect more from directors and officers and their companies than ever before.
Directors or officers can be held responsible for actual or alleged wrongful acts, errors or omissions, including negligent advice, mis-statement or improper disclosure. Additional risk arises during the merger, take-overs and acquisitions process as the slightest error or oversight could leave them exposed to legal actions from a variety of sources.
In this climate it is good practice to check the adequacy of Directors & Officers insurance before accepting an appointment as a director.
In certain circumstances Directors & Officers who retire may be given the right to purchase six years ‘run off’ cover.
The are many offences that may result in substantial fines or prison sentences for a director or officer of a firm. Whilst a Directors & Officers Liability policy cannot provide cover for criminal activities, the cost of an innocent party defending themselves against such allegations can be ruinous, yet insurable.
Directors and Offices of a firm may be held to account for;-
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Errors and omissions |
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Mis-statements |
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Neglect of duty |
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Breaches of trust or warranty |
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Bad advice |
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Discrimination |
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Wrongful termination |
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Litigation
Increased legislation has increased the possibility of legal action against directors and officers. Cases such as Enron in the USA and Parmalat in Europe act as poignant reminders to all directors of the risks they face. Shareholders, creditors, competitors, regulators and employees are all potential sources of legal action.
Claims Examples
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Director procured his company to infringe patent rights and became personally liable |
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Two directors of a company in insolvent liquidation held jointly liable for £75,000 damages (plus interest & costs) arising from their wrongful trading worsening the insolvency. |
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Managing director misrepresented (on behalf of his company) a product specification to a customer and was found personally guilty of fraud, liable for deceit and a breach of the duty of care |
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Director signs a company cheque whilst the company is in receivership, the cheque is dishonoured and the director is found to be personally responsible to the payee |
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