Directors and Officers Liability Insurance Overview

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Directors 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.
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Content

• 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

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Management Objectives Responsibilities

• Objectives
• Preserve and enhance shareholder capital
• Act in the best interests of the company
• Responsibilities
• Under Statute
• Under Common Law

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Multiple Sources of Liability

• Tort (Civil Wrong)
• Care Skill
• Fiduciary Duty
• Statute
• Contract

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Web 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

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Safety Health Welfare at Work
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Web 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

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Directors Compliance Statements their
Interpretation
EU Directives
Environmental Legislation
Tax Legislation
XYZ Limited
Industry specific Legislation
Company Acts
Competition Act
Health Safety Legislation
Employment Legislation
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What 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

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Indemnification

• 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

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DO 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
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DO Policy Construction

• Policy can be taken out in 3 formats
• Side A Cover and Side B Cover
• Side A Cover
• Individual Director Cover

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Key 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

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Key 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

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Key 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

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Key Definitions of a DO Policy

• Loss
• Damages
• Judgements
• Settlements
• Defence Costs

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Exclusions 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

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ICSA 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

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Recent 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

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Claims Against DOs

• Typical Claimants
• Shareholders
• Employees
• Competitors
• Regulatory Bodies
• Creditors
• Fellow Directors

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Claims Against DOs

• A claim for sexual harassment against an
  executive of a large Irish organisation cost over
  300000 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.

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Claims 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 25000
• Minority Shareholder Action against directors of
  Irish company settlement figure of close to 1
  million (600k settlement plus costs)

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• THANK YOU!
• QUESTIONS

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Future Issues to Consider

• Current Economic factors