Directors & Officers Insurance
for Public Companies
MPR offers D&O insurance to public companies to protect against the escalating risks and costs facing these organisations.
Public company directors and officers operate in an increasingly complex and scrutinised environment. Regulatory expectations and shareholder activism is rising and litigation trends continue to evolve.
The D&O insurance policy for public companies addresses risks that organisations have been exposed to for many years, as well as emerging risks. It is designed to address all of these threats and delivers comprehensive protection tailored to the needs of listed businesses, ensuring leadership teams are properly protected.
Why do your clients need D&O insurance?
Directors and officers face personal liability for decisions made in the course of their duties. Even unfounded allegations can lead to significant financial and reputational consequences and the need for D&O protection is clear:
- Regulatory and Governance Exposure: Directors are subject to a wide range of legal, regulatory and fiduciary duties. D&O liability insurance is a prudent risk management measure to help protect directors.
- Rising litigation: Claims can arise from a wide range of stakeholders, including:
- Shareholders (including group actions);
- Employees;
- Customers and suppliers;
- Creditors and insolvency practitioners; and
- Competitors.
- The cost of defence: Directors and officers have often done very little wrong, or nothing wrong at all, yet a substantial percentage of loss costs is the spend on defence costs;
- Rising legal costs: Specialist legal advice can be expensive, with hourly rates frequently reaching several hundred pounds, and complex investigations or litigation can quickly escalate.
What does the policy cover?
- The purpose is to insure directors and officers (and in some cases other employees) for defence costs and legal liability incurred because of claims and prosecutions against them in their role in their organisation. Also, to insure them for representation costs in investigations of them by regulators and other authorities.
- The policy will cover loss resulting from covered claims against insured persons alleging wrongful acts, error or omission, misstatement, neglect and breach of duty.
- The policy can also extend to protect the company itself in relation to securities claims.
What limits are available?
Up to £10 million for any one claim.
What does an underwriter like to see?
- Financially sound companies with consistent and experienced management.
- Good corporate governance procedures.
Is there anything an underwriter wouldn’t insure?
- Some listed businesses are intrinsically exposed to more risk. Natural resources companies and those trading in often unfamiliar and less stable jurisdictions face a higher hazard.
- Any company that has extensive US exposure is inherently more exposed to risk than one that does not.
- Shell companies require detailed attention, as do some foreign domiciled companies.
Features
For many years, and until very recently, the D&O market was characterised by an aggregate limit of liability standard, which meant that the limit stated was the most the insurer could ever pay in a policy year. Multiple D&O claims in any one policy year are rare, and unlikely, but the ‘any one claim’ option approach removes the possibility of running out of policy limits if that unlikely situation does eventuate.
The legal landscape and competitive developments are as unpredictable as they ever were. The good news is that D&O policy sophistication has improved significantly in the last 5 years and features such as extra limits are an example of this. An extra amount of limit is available for claims against non-executive directors where an indemnity is not available from the company.
Although this may never be needed, it removes some of the unpredictability that, for example, an insolvency event or a court decision can create.
Actions under UK securities law are rare. However, Section 90 of the FSMA imposes liability on those responsible for listing particulars or prospectuses to pay compensation where a person has acquired securities and suffered a loss in respect of them because of any untrue or misleading statement or omission. Continuing growth of litigation funding and specialist claimant litigation law firms are moving the dial on the development of shareholder collective action. Whilst some may want to retain the ‘purity’ of the D&O product for the sole benefit of individuals, the option does exist to extend the policy to cover the issuer in the event of an action under S90, or from other sources of liability.
Moving D&O insurance is a lot easier than it used to be. Whilst there has never been any obvious impediment to switching to a stronger product offering, bewildering use of jargon and statements of capability can nonetheless create some room for doubt. Allowing an optional ‘look back’ provision in a policy permits a previous policy to be used to interpret a claim made on a superseding form. It is a far from perfect science, but it can provide some comfort where it is required.
Why choose MPR?
- Deep experience over many years in all the products we underwrite.
- Simple and clearly stated policy language with the removal of ambiguity.
- A straightforward, broker focussed, technical and service based proposition.
- Capacity partners with strong financial rating.
What can go wrong?
The risks facing directors and officers continue to evolve.
Heightened regulatory intervention, growing stakeholder expectations, rapid technological change and an increasingly litigious environment mean that decision makers are under greater personal scrutiny than ever before.
Directors must navigate this wide range of challenges, including cyber incidents, data privacy breaches, ESG-related disclosures, financial crime, employment issues and supply chain disruption. A broader range of stakeholders are increasingly willing to challenge management decisions and, where appropriate, pursue claims against individual directors and officers.
Different types of claims patterns are emerging.
For many years, insurers recycled the same claim examples. Increasing exposure through regulatory developments, combined with an expansion of available cover under D&O policies, means more, and different, types of claims are emerging.
Cyber enabled fraud, ransomware attacks, AI-related governance failures and allegations concerning ESG disclosures can all lead to enhanced focus on those making the decisions. They are at risk of allegations of negligence, breach of duty, inadequate oversight or failures in risk management, even where they acted honestly and in good faith.
There Is No Such Thing as a Typical D&O Claim.
Regulatory investigations remain a significant source of D&O notifications and losses but analysis of claims data demonstrates that serious exposures can arise from a wide variety of circumstances, including:
- Shareholder disputes and derivative actions;
- Misrepresentation in financial statements or public disclosures;
- Insolvency and wrongful trading allegations;
- Mergers and acquisitions disputes;
- Breach of fiduciary duty claims;
- Bribery, corruption and financial crime investigations;
- Defamation, confidentiality and intellectual property disputes;
- Failure to oversee operational, technological or strategic risks.
D&O insurance is therefore an essential component of a corporate risk management strategy, helping to protect both individuals and the organisation itself when claims arise.
