John Jones MD of Champion Professional Risks (specialist division of our insurance arm Champion Insurance Group) discusses how Directors of limited companies can be held personally liable for decisions they make and the insurance protections that are available to protect against these risks.
It is a common misconception that if a company is incorporated then the Directors (and Officers) of the company are personally protected against all financial consequences. Unfortunately, this is not the case and furthermore directors’ liability is unlimited. Individuals cannot ‘hide behind’ the corporate body that employs them. As a consequence, the personal assets of Directors are actually at risk.
The types of allegations made against Directors can include, but are not limited to, breach of duty, neglect, errors or omissions, misfeasance and mis-statements. There also statutory exposures that mean that allegations and legal actions can be levelled against Directors such as Companies Act (over 200 offences), Insolvency Act (Wrongful Trading), Health & Safety at Work Act, Data Protection Act to name just a few.
We are seeing allegations and claims against directors coming from ever widening sources including regulatory bodies (and connected investigations), Health and Safety Executive, employees, environmental, creditors, lenders, shareholders, customers and suppliers. This activity is only set to increase as the UK economy emerges from lockdown and the damage caused by the pandemic becomes more apparent, particularly as the government starts to withdraw life support to businesses.
The good news is that there is already an insurance product available in the market which addresses these specific risks and protects the personal liability attached to Directors. “Directors and Officers Insurance” (also known as Management Liability insurance) has been available in the UK for a number of years, having originally been conceived in the USA – the most litigious society in the world.
Champion Insurance have been arranging Directors and Officers for over a decade and have access to most of the insurers in the UK who underwrite this specialist class of insurance. As a Champion client, you have access to our specialist insurance arm who can provide you with a tailored solution so that your personal assets are not at risk.