As well as corporate directors & officers insurance, we
have policies to cover residential block management
committees.
Taking into account the exposures highlighted, the
following circumstances can quite often give rise to claims or
legal proceedings:
Insurance cover can also include outside board cover
and pollution defence costs.
The high-profile extradition to the United States of the
British bankers known as the "NatWest Three" has prompted a surge
of interest in insurance cover for company directors.
The case, along with that of BETonSPORTS plc's former Chief
Executive David Carruthers, who was detained in July 2006 while
changing planes in Texas, has dramatically illustrated to British
businessmen how long the arm of US law can reach and prompted firms
to rethink the cover they buy to protect their managers against
lawsuits, known as directors and officers (D&O)
insurance.
The extradition of former National Westminster bankers David
Bermingham, Giles Darby and Gary Mulgrew to the United States to
stand trial on fraud charges relating to the collapse of energy
giant Enron, prompted many calls to insurers and brokers from
companies to check managers are covered (source: Reuters).
Directors and officers operate in tough environment. The key
principles governing their conduct have come under growing legal
and regulatory scrutiny due, in most part, to the visibility of
these type of corporate scandals.
Litigations
In 2002, the USA passed the Sarbanes Oxley Act which has had a
major impact on the liability of directors and officers.
Although this legislation protects shareholders and is
expected to improve corporate governance, it also bears the risk of
increasing the number of litigations. This act establishes new
fines and penalties for the corporate board of securities fraud
crime involving accounting irregularities and financial
fraud.
In the case of Sarbanes Oxley, companies based outside the US,
but with office locations in the States and/or a US stock exchange
listing, need to be compliant with that act.
The costs involved to defend directors are substantial, as are
penalties that can be personally incurred.
D&O offers directors and officers the protection they need
from personal liability and financial loss arising out of wrongful
acts committed or allegedly committed as corporate officers and
directors by transferring this risk to the insurance market.
D&O covers have gradually broadened over the years but a
combination of rising claims numbers, a doubling of average
settlement cost per claim, and increased shareholder activism has
radically changed that market.
Liability of Directors & Officers
While a company is legally permitted to cover the personal
liability costs resulting from activities performed on behalf of
the company, this ability - called indemnification - may not apply
to every situation.
In some cases, the financial burden of the liability is the
sole responsibility of the director or officer or other insured.
The primary purpose of D&O insurance is to fill these gaps,
protecting the personal assets of the individual director or
officer.
Even in cases where indemnification is available, most
policies contain a second feature, corporate reimbursement, which
will advance on behalf of the company, or repay expenses or losses
incurred by directors and officers.
Fraudulent behavior by directors is being alleged in many
cases today. Most insurers agree to pay defence costs for directors
up until they are found guilty of fraud. When a director is found
to be fraudulent, insurers look to recover defence costs already
paid out.
Most organisations, both public and private, can benefit from
D&O insurance. Towergate can work with you to decide whether a
policy can benefit yours.
