Title: Directors and Officers Liability Insurance Overview
1Directors and Officers LiabilityInsurance
Overview
- Louise Kidd, Assistant Manager,
- Financial Lines, AIG Ireland Limited
Disclaimer The Insurance Institute of Ireland
does not endorse or approve the content of any
third party.
2Content
- Management Objectives Responsibilities
- Current Legal Landscape for DOs
- DO Policy Construction
- What is Directors and Officers Insurance?
- Key Definitions under a DO Policy
- ICSA International Guidelines v Current Market
DO Policies - Recent DO Policy Features on the market
- Typical Claimants against DOs Claims Examples
3Management Objectives Responsibilities
- Objectives
- Preserve and enhance shareholder capital
- Act in the best interests of the company
- Responsibilities
- Under Statute
- Under Common Law
4Multiple Sources of Liability
- Tort (Civil Wrong)
- Care Skill
- Fiduciary Duty
- Statute
- Contract
5Web of Legislation
- Companies Act 1963
- Companies Act 1990
- Competition Act 1991
- Safety, Health Welfare at Work Act 1989-2005
- Environmental Protection Act 1992
- Companies (Auditing Accounting) Act 2003
6Safety, Health Welfare at Work
7Web of Legislation
- Companies Act 1963
- Companies Act 1990
- Competition Act 1991
- Safety, Health Welfare at Work Act 1989-2005
- Environmental Protection Act 1992
- Companies (Auditing Accounting) Act 2003
8Directors Compliance Statements their
Interpretation
EU Directives
Environmental Legislation
Tax Legislation
XYZ Limited
Industry specific Legislation
Company Acts
Competition Act
Health Safety Legislation
Employment Legislation
9What is DO Insurance?
- DO insurance indemnifies the directors and
officers for claims against them personally for
wrongful acts committed - Includes cover for judgements, settlements and
defence costs - Combined Code (June 2008) includes a
provision(A.1.5) that The company should arrange
appropriate insurance cover in respect of legal
action against its directors - Purchase of DO Insurance now permitted under
Companies (Auditing and Accounting) Act 2003 S.
56
10Indemnification
- Indemnification Provisions Companys Articles
of Association - Situations where Indemnification isnt available
or legally permitted - The Organisation lacks the funds to indemnify
- The Organisation files for bankruptcy/insolvency
- When the decision to indemnify is not automatic
- Aftermath of a hostile take-over articles of
Association changed - Director or Officer - employment terminated
11DO Policy Construction
Covered claim against an insured person
Indemnification?
No
Yes
Insured Director/officer
Insured Company Balance Sheet
Personal Assets
Corporate Assets
DO Insurance Side A
DO Insurance Side B
12DO Policy Construction
- Policy can be taken out in 3 formats
- Side A Cover and Side B Cover
- Side A Cover
- Individual Director Cover
13Key Definitions of a DO Policy
- Who is an insured person?
- Past, present or future directors and officers
- Employees acting in a managerial or supervisory
capacity - Lawful spouses of directors and officers
- Heirs, estates and legal representatives
14Key Definitions of a DO Policy
- Policy is triggered by a claim
- A written demand
- A civil proceeding
- A criminal proceeding
- A formal regulatory or administrative proceeding
against an insured person
15Key Definitions of a DO Policy
- Wrongful act
- Any actual or alleged
- Breach of trust, breach of duty, breach of
warranty of authority - Neglect, error, omission
- Or any other act
16Key Definitions of a DO Policy
- Loss
- Damages
- Judgements
- Settlements
- Defence Costs
17Exclusions what is not covered
- Exposures where covered elsewhere, for example
Pension Trustee Liability Insurance, Professional
Indemnity policy - Exposures excluded where uninsurable by law
- Exposures excluded because they are outside the
intent, for example War Terrorism - Exposures specific to your own companys
situation, for example public offering
exclusions
18ICSA International DO Guidelines v Current DO
Policy Features
- Broad definition of Insured Persons and of Claim
- Outside Directorships(where requested by
Board/refer) - Auto-Acquisition Cover(subject to thresholds
non USA) - Insured v Insured carvebacks/full cover(outside
USA) - Extended Reporting Period (as claims made
policy) or Run Off Cover for 6 years where
necessary - Worldwide Cover (consider admissibility of
paper) - ICSA Guidelines Re-Issued April 2005
19Recent DO Policy features introduced by some
insurers over last 18 months
- Extra cover for Non-Executive Directors when main
board limit exhausted - PR Value Added Services i.e to manage
reputational risk following claims against
Insured Persons - Regulatory Response Teams
- Automatic Acquisition Cover - no thresholds
- Possibility of buying broader tailored
Independent Directorship Liability wordings(IDL) - Cover for claims against the company
20Claims Against DOs
- Typical Claimants
- Shareholders
- Employees
- Competitors
- Regulatory Bodies
- Creditors
- Fellow Directors
21Claims Against DOs
- A claim for sexual harassment against an
executive of a large Irish organisation cost over
300,000 to investigate and defend, even though
no settlement or award was made. - Receiver taking commercial court action to
recover 1m from 2 former directors for alleged
reckless and fraudulent trading. Liquidator
application to High Court to restrict the
directors. - An Irish food company director was sued for
breach of confidentiality after providing a
reference for an ex-employee, even though the
terms of the ex-employees departure from the
company were subject to a confidentiality
agreement. Claim for 900k, 35k settlement
agreed with 250k costs.
22Claims against DOs
- Director called to public enquiry after fatal
accident A site workman was killed when a
building collapsed following the removal of a
load bearing wall there were clear instructions
to the effect that the wall should not be removed
and on this basis the director was not found
liable in court but the costs for the directors
representation were in the region of 25,000 - Minority Shareholder Action against directors of
Irish company settlement figure of close to 1
million (600k settlement plus costs)
23 24Future Issues to Consider