MPR offers D&O insurance to public companies to protect against the escalating risks and costs facing these organisations
The D&O insurance policy for public companies addresses risks that organisations have been exposed to for many years. It also incorporates design developments to accommodate many of the newly emerging litigation trends and themes, leading to comprehensive policy content for all types of public companies.
Why do your clients need D&O insurance?
- Provision A.1.3. of The UK Corporate Governance Code states: “The company should arrange appropriate insurance cover in respect of legal action against its directors.”
- The number of potential offences continues to rise as new and existing legislation develops. A wide range of parties who might act against directors and officers include employees, shareholders, customers, creditors, liquidators, competitors and regulatory bodies.
- Directors and officers have sometimes done very little wrong, or nothing wrong at all. An average of 65% of D&O loss spend is on defence costs, evidencing significant expense to fend off all kinds of accusations.
- Specialist lawyers do not come cheap. Depending on the nature of the allegations, hourly rates can be many hundreds of pounds.
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.
What limits are available?
Up to £15 million for any one claim.
What does an underwriter like to see?
- Financially sound companies with consistent and experienced management.
- Good corporate governance procedures.
- UK or European listed companies.
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 higher hazard than one that does not.
- Shell companies require detailed attention, as do some foreign domiciled companies.
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
- Strong financial rating
- Any one claim limit of liability option
- 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.
- Extra cover limit for non-executive directors
- 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.
- Optional securities cover for the plc entity
- 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.
- Previous policy cover option
- 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.
What can go wrong?
The regulatory landscape for directors and officers in the United Kingdom is rapidly evolving.
Statements like this have almost become clichés, but the pace of change in recent years has definitely accelerated. We can only guess as to what impact Brexit will have on the legal and competitive landscape, but the recent past is littered with changes affecting organisations, including: changes to sentencing guidelines, the Senior Managers Regime, increased incidences of whistleblowing and appointment of a whistleblowers’ champion; the advent of the General Data Protection Regulation; Deferred Prosecution Agreements. These add to the regulatory burden and the potential for claims against 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.
An example of this includes a Finance Director, who was tricked into transferring a 6-figure sum by a Social Engineer. Even though the fraud was sophisticated (a fact that was widely accepted), he was sued in negligence by his employer.
This is a claim that, 10 years ago, might not have been brought. Themes such as Social Engineering have developed with the advance of technology, the D&O policy language has become more generous in areas such as policyholder versus an insured person, and the willingness to be more creative in constructing a claim have created a change in the environment for D&O claims.
Whilst regulatory action remains one of the biggest sources of litigation against corporate directors and officers, there really is no such thing as a typical D&O claim.
Analysis of large claims against directors and officers of public companies demonstrates that it is difficult to compartmentalise them. Whilst some broad themes do exist, large losses can originate from all kinds of places, including:
- Market abuse and insider trading;
- Insolvency of Australian subsidiaries;
- Slander and malicious falsehood;
- Breach of confidentiality and agreement on an acquisition;
- Intentional manipulation of financial information to induce an acquisition at an inflated price;
- Misrepresentation in an offer document;
- Bribery investigations by the Serious Fraud Office.