Geoffrey de Pinchart, business unit manager: D&O Liability at Aon South Africa, discusses how directors and officers liability claims affect directors, officers and employees serving in a managerial or supervisory capacity.
While serving a company of any size ranging from large to small, public and private, even non-profit organisations and membership associations they need comprehensive cover for liabilities that could arise from them being held liable for wrongdoings in conducting their managerial responsibilities.
Here are the most important reasons to talk to your professional Aon broker about directors and officers cover:
* Typically in private companies, the directors often invest their own personal wealth in the business, which means their net worth is directly tied to the financial health of the company. Defending a claim without D&O cover could directly impact their family’s financial security and personal assets and is a costly undertaking.
* D&O claims are stressful and long-tailed, with the legal process often taking years to come to conclusion. This can distract the directors from running the business effectively. Having access to quality attorneys with the relevant knowledge and expertise to defend them will give them some comfort in these trying times.
* Bad business decisions are likely to be more visible in a poor economic environment thus attracting the increased attention of shareholders and other third parties who are looking to recover losses.
* Unforeseen and unexpected investigations by government and regulatory agencies can generate enormous defence costs even if no wrongdoing is found.
* Bankruptcy situations can lead to claims by lenders, creditors and bankrupt trustees.
* D&O insurance takes care of costly defence costs, thereby ensuring that a company’s cash flow remains unaffected. The cost of defending corporate lawsuits may exceed the net worth of most private companies. In some cases the company may not be able to pay the defence costs as it may be prohibited by law.
* A comprehensive D&O program can attract good talent on the board of directors of the company.
* Directors and managers may be held criminally liable for the death of staff members if accused of not providing a safe work environment. A D&O policy will provide defence cost to protect them.
* Cyber breaches are an ever growing risk. Should directors be held liable for a breach that affected the share price, they could be held liable by shareholders or a third party who feels that the directors did not have the necessary security in place to protect their information. The policy would respond to protect them.
* If the director or manager is held liable for unfair labour practice the policy would respond to protect them.
