Directors’ and Officers’ Liability and Employment
Practices Liability Seminar
Chris McMurray, Senior Financial Lines Underwriter (Scotland)
August 2015
Agenda
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Background to D&O Insurance
Scope of cover
Directors’ duties and responsibilities
Directors’ disqualification and other potential liabilities
Where do claims come from?
Recent D&O Cases and Claims
The effect on the individual not just the entity
Employment Practices Liability
Evolution of D&O Insurance
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What is D&O insurance?
Origins of the cover
Who should purchase the cover?
Claims trends
Premium trends
Scope of Cover
 D&O
– Side A
– Side B
– Side C
 Corporate Legal Liability
 Employment Practices Liability
Directors’ duties and responsibilities
“Wrongful Act”
The Companies Act 2006 sets out eight duties:1.
Duty to promote the success of the company
2.
Duty to exercise reasonable care, skill and diligence
3.
Duty to exercise independent judgement
4.
Duty to act within powers
5.
Duty to avoid conflicts of interest
6.
Duty to declare interests in proposed transactions
7.
Duty to declare interests in existing transactions
8.
Duty not to accept benefits from third parties
B.
Directors’ disqualification and other potential liabilities
1.
Breach of duties under the Companies Act 2006 Sections 171 to 177
2.
Wrongful trading under Section 214 of the Insolvency Act 1986
“if in the course of the winding-up of a company … the court … may
declare (a company director) liable to make such contribution … to the
company’s assets as the court thinks proper”
3.
Company Directors Disqualification Act 1986
Those concerned direct or indirect in promotion, formation or
management of company
Up to 15 years disqualification
4.
Liability under Contract
e.g. Personal guarantees, shareholders approval, pre-incorporation
agreements
5.
Bribery Act
6.
Corporate Manslaughter/Homicide legislation
7.
Health and Safety at Work, etc Act 1974, Section 37
Claims
 On the increase
 Sources
– Internal
– External
Claims
Creditors
Bankruptcy
/insolvency
trustee
Stockholders
Customers
Subsidiary
Suppliers
Company Itself
External Claims
Internal
Claims
Competitors
Other insured
individuals (D&O)
Tax Authorities
Social Security
Employees
C.
Recent D&O cases & claims
i.
Slander
- insurer paid out £26,500 under D&O policy due
to comments made in public by a manager against a
clothing retail customer
ii.
Overstated company’s financial - insured paid out £10,000 under D&O policy
Position
after a director overstated solvency and profit
levels to potential investors
iii.
Hefty damages award against - in ODC Securities v McGrath (2013) the High
dishonest director
Court awarded damages of £5 million against a
dishonest director in breach of fiduciary duties
iv.
Three monkeys’ defence of - Aberdeen Sheriff awarded damages of
no avail
£100,000 to a liquidator against a former
director who claimed to be unaware of
wrongdoing taking place in case of McGregor
Glazing Ltd v McGregor (2013)
v.
Managing Director to repay - The Court of Session in Parks of Hamilton
£50,000
vi.
Directorship defined for
disqualification purposes
(Holdings) Ltd v Campbell (2013) held that a
director had been in breach of his fiduciary
duties in a sale negotiation
- High Court in UKLL Limited (2013) very usefully
sets out ten characteristics of “de facto”
director 12 years disqualification imposed after
losses of £70 million.
Personal Exposure
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Unlimited!!!
The company will protect me, won’t it?
Personal wealth at risk!!!
Is it worth the risk?
Employment Practices Liability
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Scope of cover
Where do claims come from?
Development sin EPL claims since 2008
Difference between EPL and other similar covers
What underwriters are looking for
Background to EPL
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U.S – 1980’s, UK – 1990’s
Stand alone policy
Now in D&O forms in some part
Increased claims activity
Employment practices liabilities
1.
“Wrongful Employment Practice”
2.
Wide potential scope
Defence costs and claimant’s costs
Investigation costs
Awards of Damages
3.
Important exceptions not covered
Criminal fines/penalties
Notice payments
Severance payments
4.
Main relevant EPL legislation
a) Employment Rights Act 1996
b) Equality Act 2010
c)
Working Time Regulations 1998
5.
Can be costly…
- Statutory caps on compensation of £72,400 or 52 weeks pay (whichever is
lower)
- No cap on discrimination awards
- Interest on unpaid discrimination awards increased from 0.5% to 8% from
28/07/2013)
6.
Recent case examples:
a) £235,825 award in disability discrimination case (Wilebore cancer victim)
b) £136,592 in an age discrimination case (Dixon : head groundsperson aged
58)
c)
£1 million award for institutionalised racism Browne including £5,000
aggravated damages as no employer apology
d) Manner of dismissal can give rise to damages e.g. in Mark v Cann Hall PS
– marching teacher off premises
Claims and the Evolving Environment
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Claims activity increased since 2008
Recession
Increased coverage
Reduced deductibles
Employees understanding their rights
Differences
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Legal expenses
D&O
Limits available
Cover
Underwriting
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Employee numbers
Claims activity
Territories
Salaries / turnover in staff etc
Occupation
Deducible levels
Limits available
Questions?