As a Company Director there are a number of responsibilities placed upon you to act with care, in good faith and within the law, to act in the best interests of the company and indeed a responsibility to ensure that other Directors do likewise. Should someone allege that you have not met any of these responsibilities then a claim may arise against you personally.
Broadly speaking, personal claims or proceedings against directors or officers can be as a result of any decision made or act carried out in the workplace however innocuous it may have seemed at the time.
It is a common misconception that the effects of issues within one’s employment, such as those noted below, are limited solely to the workplace, this is not the case and indeed a person’s livelihood could be at risk even if the claim submitted is spurious and without foundation.
There is however insurance protection available by way of a Directors’ and Officers’ policy which will cover defence costs and awards arising as a result of an alleged or actual Wrongful Act by an Insured Person.
A Wrongful Act includes:
- claims for breach of duty, breach of trust, negligence, defamation, breach of warranty of authority;
- allegations of involuntary, constructive or gross negligence manslaughter or claims under health and safety legislation;
- legal representation costs for individuals at other official examinations, enquiries or investigations;
- claims arising from pollution.
Although the Limited status of a company provides some protection for shareholders, this does not extend to a Director or Officer whose personal liability and exposure remains unlimited. And unfortunately, depending on the circumstances of a claim, you may not be able to rely on the Company providing financial assistance on the event you are personally sued.
Who Does the Policy Protect?
The definition of a Director and Officer under the policy is deliberately wide, as an example the Aviva policy will cover “Any natural person who was, is or becomes during the Period of Insurance a Director, Officer or Member of the Company”
These people are further defined within the Aviva wording:
Director – Any natural person who was, is, or becomes during the Period of Insurance a director of the Company including a de facto or Shadow Director.
Officer – Any Employee of the Company whilst acting in a managerial or supervisory capacity; or, any Employee of the Company who, whilst acting as an employee, is joined as a party to any action against any Insured Person
Member – A member of a limited liability partnership formed under the Limited Liability Partnerships Act 2000 or any subsequent amendment or re-enactment
So while you may be confident that all of your company’s directors are aware of their legal responsibilities, it is vital to understand that problems can be caused inadvertently by individuals at many levels of an organisation.
Who May Make a Claim against a Director or Officer?
- Government/Regulatory Bodies
- Third Parties
- Other Directors
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