Directors & Officers Liability Insurance
We now live in an increasingly regulated environment. The personal liabilities facing a director have increased dramatically in recent years. The Companies Act 2006 codifies directors’ duties including the long-established fiduciary duties as well as the common law duty of care and skill into a statutory statement of seven general duties. Among other things, personal legal responsibility for company directors can include:
- Involuntary, constructive or gross negligence
- manslaughter and health & safety legislation
- Anti-discrimination regulations, including racial and age discrimination
- Employment disputes, including wrongful, unfair or constructive dismissal, harassment and wrongful discipline
- Wrongful trading i.e. trading in the knowledge the business is or will become insolvent
- Unpaid taxes where the company has become insolvent
Even if allegations are unfounded defense costs can be crippling. Other legal costs should not be underestimated. As a director or officer you may also be held personally liable for the actions or omissions of others.
But my company is ‘Limited Liability’!
It is an unfortunate, and persistent, myth that the company having limited liability status protects directors and officers from personal liability. It does not. In reality, a director’s liability is potentially unlimited even to the extent of a charge on his salary if assets such as his house, cars and savings do not meet his liabilities. The limited liability status provides significant protection to shareholders but virtually nothing to officers of the company.
In addition, there is no restriction on the size of company being sued. Arguably, smaller companies are more at risk as they tend not to have the infrastructure or resources either to prevent incidents or to keep up with changing legislation.