Take cover! Insolvency claims & D&O cover

Take cover! Insolvency claims & D&O cover

In this article, Lino Di Lorenzo and Paul Spibey from Mills & Reeve look at insolvency claims and D&O cover. The key points arising from the article are:

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  • –There have been a number of recent high profile failures and, as the BHS saga shows, the acts of both current and former boards of directors inevitably come under scrutiny where the company’s losses are so significant. Many companies take out policies specifically to protect the board of directors in respect of the myriad of duties they owe
  • ––Directors and officers liability (D&O) insurance is written on a ‘claims made’ basis, which means that the policy responds to claims made against directors and officers during the policy period and notified to insurers within that period. Insolvency situations often lead to claims against former, even retired, directors who remain ‘in the frame’ long after the alleged wrongful act has been committed.
  • Most D&O policies look to exclude civil, criminal or punitive fines or penalties, as well as sums uninsurable under UK law, and losses which arise from an insured’s ‘wilful misconduct’. The Company Directors Disqualification Act 1986 has recently been amended to allow for the possibility of the court making compensation orders as part of the disqualification proceedings and it seems unlikely such compensation orders would be covered by a D&O policy.
  • D&O insurers are obliged to advance defence costs when a valid notification is made, assuming the director pleads his innocence of any dishonest or fraudulent conduct. It is only if such conduct is proven or admitted, that insurers may attempt to reclaim those costs from the director(s) concerned (albeit, by that stage, they may be so substantial that insurers can recover only a small proportion, if anything at all, from the directors concerned).

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About the author:

Neeta started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her paralegal experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office in 2006. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice. She has been working at Lexis Nexis since April 2013.