INSURANCE GUIDANCE
The University of Hull
Insurance Office
University Spin out
Companies Guidance for
Management
INSURANCE GUIDANCE NOTE
Further copies can be obtained from the Insurance Office Web site http://www. hull.ac.uk/
insurance/guidance.html
Extension 6403
Issued Date January 2014
OVERVIEW
There are a number of risk issues which arise from the university’s involvement with spin-out
companies. The purpose of this briefing note is to identify those risks and set out how they can be
eliminated or reduced.
What is a spin-out company?
For the purposes of this guide, a spin-out is a limited company established by individuals under a
contract of employment with the university with its approval and where the university has a minority
shareholding (less than 50% of share capital) in the company. The company may have been set up to
exploit an intellectual property right, manufacture of a product or the provision of a service.
It is possible that the business activities of the spin-out are conducted on university premises or from
facilities elsewhere. It is likely that other senior employees of the university have a managerial
involvement in the company in the way of directorships eg. Director of Finance, Vice Chancellor etc.
What are the risks?

To the University, principally that the customer thinks it is dealing with the University rather than
the spin-out, or employees of the spin out act in such a way as to imply an involvement by the
University in the contract. This could result in the customer making a complaint or taking Court
action directly against the University which may be upheld causing financial loss to the University
by putting us in a situation where insurance is invalidated.

Risk to the spin out that any supplied product or service is defective and a claim is made by the
customer or end user

Operational risks to the spin-out arising from normal business activities eg. accidents at work
involving own employees and third parties (such as university employees), damage to property (eg.
University premises and equipment).

Failure by directors of the the spin-out to operate within the laws concerning company governance
and legislation.
What needs to be done?

Check that terms and conditions of contract are always issued to customers by the spin-out and that
the terms are sufficiently drawn to the attention of the client. Ensure that any involvement by
University of Hull is disclaimed.

Check that spin out has proper insurances to protect its potential liabilities and to comply with the
law (eg compulsory classes of Employers Liability and Motor)

Ensure spin out has effected Directors and Officers insurance to protect all directors.
Insurance Guidance Notes – Spin Out Companies
Page 1
Issued Date January 2014
Recommended insurance cover for spin-outs

Employers liability - will be needed even if only directors work in the company. Minimum level
£5m. Required by law as soon as company is established, even if not yet actually trading.

Public / Products liability - protects against accidental damage and injury to third parties such as
customers, suppliers and, importantly, the university arising from accidents which are the fault of
directors / employees of the spin out. Minimum level £5m. May also like to consider product
efficacy cover which deals with claims from product not being fit for purpose.

Professional indemnity - to cover liability arising from bad advice as opposed to badly made
products and includes faulty design such as programming mistakes in software which is produced,
accidental breaches of copyright and libel / slander. Minimum level £5m.

Directors and Officers insurance - handles claims received by directors in a personal capacity for
maladministration and mismanagement, errors and omissions.

Motor insurance - To cover damage to owned and hired in vehicles and liability to third parties as
required by law.

Property insurance - loss or damage to property owned or on loan to or hired in by the spin out

Travel insurance - to cover overseas promotional and marketing trips for example.

Goods in transit - for consignments to customers, temporary removal of equipment from home
base to another site such as an exhibition hall.
Next steps
The insurance office is available to provide consultancy to spin-out companies in the way of risk
management and design of an appropriate insurance portfolio. The University’s Insurance Brokers
Hendersons Insurance Brokers have expressed willingness in obtaining terms from the insurance
market place for the policies that are required.
Insurance Guidance Notes – Spin Out Companies
Page 2
Issued Date January 2014