Risky Business: Protecting Company Directors And Officers From Crippling Claims

Did you know that as a director or officer of a company, you are legally responsible for your actions? That under the Companies Act 2006, there are more than 200 areas of statutory liability you are exposed to? And that failing to act within the remit of the Act could lead to civil or criminal charges for which you could be personally liable and face hefty fines or even imprisonment?

Today’s society is a heavily regulated one, and increasingly litigious too. We’re living in an age where employees are well aware of their rights and not afraid to sue when they feel those rights have been breached. Not to mention how these days industry regulators are more proactive then ever when it comes to investigating complaints against companies.

So many Acts, so many risks

There are countless Acts and sets of regulations set down to protect people and their rights. There’s the Equality Act 2010, the Health and Safety at Work etc. Act 1974, and numerous pieces of legislation designed to prevent discrimination of various types.

And then you have all the European directives that seem to be introduced or updated at every blink. For example, did you know that as of January 2015,  an amendment to the Waste Regulations 2011 based on the EU Waste Framework Directive will kick in, making companies legally obliged to separate recyclable material from landfill waste? Failure to comply could land you in court facing an unlimited fine. New laws on how to deal with consumer data are also expected to be introduced by the end of this year, once they have been passed by the Council of the European Union.

Knowing how to keep up and comply with all of this legislation is at best difficult, but in reality, pretty much impossible. Larger organisations will have legal teams to keep them on the right side of the law. Smaller businesses however will generally be finding their own way around, yet still have to comply with exactly the same rules.

So how exactly are you at risk as a director or officer of a company?

Aside from failing to act in the company’s best interests, acting negligently or in a misleading fashion or trading in a wrongful manner there are numerous risks directors and officers face on a daily basis. Here are some of the most common:

Employment Claims

It’s a worrying fact, and statistics dictate that you are five times more likely to face an employment tribunal than to suffer loss from a fire. Employee claims could come from unfair dismissal, discrimination or harassment to name just a few. Thousands of claims are brought against employers every year.

Health & Safety Failings

Health and safety failings are another major issue. A look at the Health & Safety Executive (HSE) website reveals a long and ongoing list of reported cases. At the time of writing, just this month alone there have been over 20 reported incidents across the UK. HSE investigations and prosecutions are extremely costly to manage and defend. And under the Health and Safety (Fees) Regulations 2012, anyone who breaches health and safety laws is liable for recovery of HSE’s related costs, including inspection, investigation and taking enforcement action.

Other Regulatory Failings

The Information Commissioner’s Office (ICO) may decide to investigate if you have breached the various acts they police, such as the Data Protection Act or the Privacy and Electronic Communications Regulations, amongst others. Do you know your responsibilities under these Acts? If you are not clear on them, you could be at risk of non-compliance.

Under the rules set down by the Advertising Standards Authority (ASA) you have a duty to ensure all your marketing complies with their Advertising Codes. Are you aware of what these Codes dictate?

The Department of Business, Innovation & Skills (BIS) investigates and prosecutes a range of offences relating to irregularities in company activity, and has the power to take directors to the criminal court. Convicted directors can face sentences of 2 to 10 years, and can be banned from being a director or manager again for up to 15 years.

How do you protect yourself from risk?

Any allegations of wrongdoing need to be investigated and defended. This can cost a substantial amount – often running into thousands or hundreds of thousands of pounds – even if the case doesn’t reach court or no wrongdoing is proved. It means that directors’ and officers’ personal finances are at risk. And for this reason, it is essential that companies provide protection with Directors and Officers Liability Insurance (D&O).

Directors and Officers insurance covers the costs associated with defending allegations of wrongdoing. It removes the financial risks directors and officers face and protects them should allegations or claims be made.

Directors & Officers Liability Insurance

D&O insurance is inexpensive, with premiums starting at just £100 for companies with a turnover under £150,000. The risks you face are vast, yet the costs to protect yourself against them are low. D&O insurance can cover your key individuals for claims arising from wrongful dismissal, workplace bullying and harassment, insolvency, regulatory failings, environmental mismanagement … the list goes on. This cover will help protect against the loss of personal assets and will provide defence costs against actions that could lead to a custodial sentence, such as corporate manslaughter.

Many high calibre directors and officers expect D&O cover to be in place before they take up a new appointment.

Can you afford not to have this cover in place? If you’d like to talk to us about setting up Directors and Officers Liability Insurance for the key personnel in your company, please get in touch, we’re here to help.