A survey has revealed that an overwhelming majority of Marine Industry directors remain exposed to losing their personal assets in the event of legal action being taken against them in their capacity of company directors.

Of over 200 business owners surveyed in the last 2 years, not one was covered by Directors & Officers (D&O) Liability Insurance – cover that could offer vital protection in the event of a variety of legal actions being taken against them or their senior staff.

It is thought this situation has arisen due to the understanding that a limited company’s status legally separates the business owner from the company itself.   Whilst this safeguards the owner’s personal assets in the unfortunate event of the business failing, the owner, or other responsible staff, can still be sued in their own right for decisions and actions taken whilst managing the business.

The duties of company directors are established in law and include the following areas of responsibility:

Duty of Care

Directors are required to act with ‘the care an ordinary man would take in the same circumstances on his own behalf’ and with the skill expected from someone with his ‘particular knowledge and experience’. Where duties are delegated the Director is responsible for ensuring that the person to whom the duties are delegated is sufficiently experienced, reliable and honest.

Fiduciary Duty

Directors must act honestly, in good faith and in the best interest of the company and must ensure they do not have any conflict of interest.

Statutory Duty

Company directors are legally bound by legislation such as the Companies Act 1985, Insolvency Act 1986, Financial Services Act 1986, Environmental Protection Act 1990, Health and Safety at Work Act 1974.

How Can Claims Arise?

Whilst public bodies such as the Health & Safety Executive can prosecute directors if they are perceived to have failed to comply with their statutory duties, claims could also arise from numerous third parties such as employees, creditors, customers or suppliers.

With the reported number of injuries to employees reported under RIDDOR exceeding 750,000 in 2013 and lawyers able to act on a “No-Win, No-Fee” basis, directors appear to be more exposed than ever.

What Are The Financial Implications of a Claim?

Directors will be personally liable for meeting the cost of legal expenses as well as any damages awards, fines or penalties.  This means assets such as their cars, houses, stocks and money could be lost.  Companies are prohibited from indemnifying their directors in the event of their insolvency.

How Can Directors &Officers Liability Insurance Help?

Whilst a D&O policy will not cover any fines against directors it will cover the cost of defending a prosecution until the point when guilt is established.  This could potentially save tens, if not hundreds, of thousands of pounds of an individual’s assets in legal expenses.  A D&O policy can also cover awards for damages and legal expenses made against directors in civil cases.

The business itself can also be sued for its decision-making process (known as the Entity Extension) and this extension of cover needs to be in place for a Directors & Officers policy to fully cover a business, its directors and management team.

What Are The Costs of Directors & Officers Liability Insurance? 

IRCM’s D&O Insurance cover offers entry level protection at under £300 per year for businesses with turnover under £10,000,000.  If you are interested in finding out how you can help protect your personal assets in the event of legal action being taken against you as a company director or senior member of staff, call our specialist team now on 01902 796 793.

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