Common myths surrounding Directors’ liabilities
The use and importance that Directors and Officers (D&O) insurance plays as a risk mitigation mechanism is frequently not fully understood or appreciated. Tim Mitchell, head of commercial at Rossborough Jersey explains some of the common myths surrounding this business critical insurance.
“It’s only designed to protect directors”
Wrong. Anyone who holds a key position or provides information that a board relies on when making decisions can be implicated. Health and Safety, MLRO and Data Protection Officers amongst others should be protected by a comprehensive Directors and Officers (D&O) policy.
“Directors have limited liability”
Many wrongly assume they are covered by their company’s limited status. A director is an agent of the company, so if you’re sued for negligence your liability as a director is potentially unlimited and your legal defence bill alone can easily have tens or hundreds of thousands on the end of it. Then there is also the compensation bill to consider.
“The company will indemnify me”
What if legally it can’t, or it chooses not to? If the company does choose to indemnify you, a lack of funds may cut their support short. Maintaining a steady cash flow is hard enough for any business without an expensive court case soaking up resources. When the cash runs out, you could be left with the bill.
“Directors of small businesses don’t need cover”
Just because it’s not a large business, doesn’t mean mistakes can’t be made. If something goes wrong, directors of small businesses are as liable as any other. If anything, they’re an easier target because they sometimes lack the support of full time legal, compliance, human resources, or risk teams.
“I don’t work for that company anymore”
A recent court case has ruled that a director’s liability can remain for 10 years after resignation. If no insurance policy is in place, it’s unlikely your former employer will indemnify you. Do you have financial resources to fund a potentially financially crippling legal defence?
For further information or advice call your local Rossborough branch today.
