litigation against company directorsMany Company Directors believe that being part of a Limited Company protects them against being sued personally. Whilst a Limited Company does offer an element of protection, there are no guarantees, and a growing number of directors are being sued personally for actions they carried out on behalf of a company.

Whilst litigation of this sort is rare, it is on the increase. As society becomes more litigious, when legal action against a company fails, in some instances the next course of action may be to sue one of the directors or senior managers of the company personally.

Why would someone take legal action in the first place?

If someone has suffered a financial loss as a result of their dealings with a company, and feels that the company are to blame, they may look to recover their losses by suing the company.

Why would a director or senior manager become involved?

In certain circumstances, the parties who suffered the financial loss may turn their attentions to one or more of the company’s directors or managers instead and look to sue them personally. This could occur when one or more of the following applies:

  • The company no longer exists
  • The company has successfully defended a claim already
  • Their grievance may be with the individual rather than the company, especially if the complaint relates to bullying, harassment or discrimination
  • The individual involved has left the company

Your company can arrange Directors & Officers’ Liability Insurance to protect its current directors and senior managers against such claims.

How can insurance protect a company’s directors?

Directors & Officers’ Liability Insurance can provide funds to cover your legal costs as well as the cost of damages awarded against the individual. It also gives them access to legal advice to help defend the claim.  Even if they receive a claim which turns out to be unsuccessful, the process is very stressful, and it still takes time and money to defend the claim. As their employer, offering this type of cover gives them added peace of mind that they will be covered if their actions on behalf of the company impact upon them personally.

How can claims occur?

As well as legal action, some policies cover action from regulators and professional bodies. The following are some real-life examples of claims that have occurred:

  • A former director of a company sued the remaining directors, claiming that they were responsible for a shortfall in his pension funds due to the way they had administered his pension during his employment.
  • A firm and a number of its senior staff were named in allegations of illegal price-fixing.
  • In an intellectual property dispute, it was alleged that key individuals knowingly infringed a competitor’s intellectual assets
  • Lenders sued an individual for fraudulent misrepresentation, when arranging a loan which the company was unable to repay.
  • Regulators alleged that a company’s directors had misled them about their business practices.

If you need to discuss Directors & Officers’ Liability Insurance for your business, or even if you just want to know more about how compensation claims can arise, call us on 0844 558 2669 or contact us through the website.