Being a director is often challenging and potentially lucrative, but if the prospect of being sued is looming, it can be a lonely and alarming position.
Directors and officers cover (D&O) provides a suit of armour in the face of legal action, with the insurer stepping in to provide guidance at the first sign of a problem and ensuring legal costs and damages are met.
Cyber risks are a key topic in many boardrooms and are driven onto the agenda by high profile data breaches, distributed denial of services attacks and rising ransomware and cyber extortion attacks. The risk of a cyber-attack is a constantly evolving threat and for most companies, there is a recognition that it is not if but when their organisation will be impacted.In the digital age, threats are coming thick and fast and directors are now more frequently having to contend with cyberattacks and data breaches – these are not just issues that affect large organisations.
Impact of the GDPR
D&O was invented in the US where many huge claims have been paid out, fuelled by class actions. In the UK, there is a different legal framework, but there have been claims against directors and the numbers are rising. Although not as frequent in the UK, claims by shareholders/debt holders do occur but in addition to these there are an increasing number of criminal prosecutions or investigations arising from incidents such as deaths or injuries in the workplace, food contamination and breaches of consumer protection laws.
The coming years, however, could see data issues as a further reason to put directors in the dock and a spur for this is likely to be the impending General Data Protection Regulation (GDPR).
Here are some other reasons to consider D&O insurance:
Employment Claims Sadly, we now live is a litigious society, ‘where there is blame there is claim mentality’. A company needs to protect itself, as claims can result in astounding settlements
SME’s (Small Medium sized Enterprises) are exposed. In fact, a small operation is far more vulnerable to financial devastation from litigation fees than a larger company with more money and resources is
Personal assets at risk. If a Director has been accused of breaching their duty, then their personal assets are at risk
Regulators are becoming more vigilant. One of the main drivers of claims in the UK has been the increased efforts made by regulatory bodies to investigate and prosecute
The cost of legal action. There has been an exponential rise in legal costs for defending allegations. Companies or directors could find these run into thousands of pounds
Investors could try to sue you. Because investors who lose value in their shares as a result of a Director or company’s alleged misconduct, may pursue court action for compensation
Protection against insolvency or bankruptcy. If a Director or company becomes insolvent or bankrupt and a creditor feels that, they have not acted in their best interest they may take up legal action. Another cost to factor in
Do not assume that D&O insurance is covered by other liability policies. A common misunderstanding by other Directors or companies is that this is covered by other liability policies such as Professional Indemnity
D&O insurance is affordable. The cost per annum is affordable when you consider a claim could run into hundreds of thousands of pounds, it is worthwhile
An advantage when it comes to attracting individuals to join your company, knowing they will be protected.
If you have any questions, do not hesitate to contact us on 01245 449060