Many companies are unaware of or have considered and rejected the idea of director and officer (D&O) insurance, but past experience indicates that along with liquidity problems, companies and their directors face a heightened risk of litigation during economic downturns.
The usual purpose of D&O insurance is to cover the threat to directors and senior managers that their personal assets will be at risk in the event of litigation. Normally, the company will write a policy to indemnify its officers, and D&O insurance is normally written as an ‘add on’, to cover risks not dealt with by the company’s policy, or as ‘top-up’ cover to it.
There are types of activity that significantly increase the risk to directors. For example, raising capital by way of share issue or by the issue of public debt is particularly risky. Actions by employees and shareholders are also a risk in some circumstances. The Companies Act 2006 has posed additional obligations on company directors as well.
“In the present environment, it is likely that investors, creditors, employees and customers will be quick to act when they see things going wrong,” says <<CONTACT DETAILS>>. “Now is a good time to undertake a comprehensive review of your existing D&O insurance coverage, to review the precise terms attaching to any commercial finance or debenture agreements and to consider the protection offered by your contract of service.”
See also the article in Accountancy Age, 9 October 2008, p 25.