Why Covid-19 Makes D&O Insurance Vital

In light of the Covid-19 pandemic, we understand more than ever how important it is for Directors & Officers to have the right protection in place.

D&O Insurance Cover

  • Covers Directors against personal lawsuits in civil courts –defence costs and any damages awarded.

  • Covers Directors against any personal criminal defence costs (but not any fines or penalties imposed).

  • Can be extended to cover Directors, officers and the “entity” for employment disputes

The risk to Directors and officers of SMEs

Almost all “Blue Chip” corporates now buy D&O insurance, but the Directors of many SMEs remain exposed with no cover – sometimes due to the misconception that the risks relate to larger companies. Directors of Limited Companies of any size share the same duties and responsibilities(see the Companies Act 2006 for more detail: http://www.legislation.gov.uk/ukpga/2006/46/part/10/chapter/2).

  • New boards or company owners may take action after a takeover if there are unexpected issues which emerge once they own the business.

  • The Health and Safety executive regularly prosecute individual Directors for breaches following accidents or near misses (between 2015 and 2016 HSE prosecutions against individual Directors following accidents or near misses TREBLED). Defence costs in these circumstances can be very expensive. In a recent case involving a GRP Group broker client, the Directors of a haulage business were prosecuted following a motorway accident involving their company vehicles – defence costs covered by their D&O insurer ran to several a million pounds.

  • Tax disputes with the HMRC may often result in actions against individuals, rather than the company.

    Why has the Covid 19 crisis made claims more likely?

    Covid 19 is having repercussions which are likely to increase the number of claims against individuals, here are a few possible examples:

    •       An employee asked to return to the workplace could resign, then claim constructive dismissal if they were concerned about safety because social distancing measures have not been properly implemented.

    •       The Health and Safety Executive could take action if a cluster of Covid 19 cases were traced back to a specific work place, and they consider that required social distancing measures have not been properly implemented.

    Sadly it is likely that the lockdown will result in an increase in insolvencies. Where a company becomes insolvent, claims are much more likely against individual Directors where the Company has no assets to pay creditors.

    The D&O insurance market is hardening

    Insurers are aware that the current crisis will result in more claims, and the market is already hardening, with covers being withdrawn and premiums increasing – we anticipate that this trend will continue, so buying insurance now, even if other covers in a company insurance programme are not due for renewal makes sense to minimise cost and ensure the required cover is available.

    Insurance buyers are personally at risk for a decision not to buy D&O

    If a director fails to take out D&O insurance without consulting the board, or lapses an existing policy without consulting the board, they could face a personal lawsuit from the entity or other directors. This can happen if at a later date it can be shown that had the D&O cover been in place, an individual director or the entity would have gained some form of protection from the policy. To protect against this, the officer responsible for buying insurance should ensure that the decision not to buy is formally agreed and documented. To help protect our clients, Higos will request that a declaration confirming the decision not to buy D&O has been agreed by the Board. This declaration can then be held on our file as evidence in the event of a future dispute.

    For independent advice or a quotation visit our branch finder at: https://www.higos.co.uk/contact-us/

    For Directors & Officers insurance, it has to be Higos!

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