Those directors and officers should immediately check whether or not they are covered by directors' and officers' (D&O) insurance cover. If not it is something they should consider –because the SFO is increasingly targeting senior officers and costs can quickly mount - the costs of defending a criminal prosecution can reach seven digit sums.
D&O insurance premiums are usually paid for by the company and the insurance cover is personal to the director, not the company. Even after retirement, D&O can provide a director with some protection.
Here are some tips for ensuring that you have the cover you need.
Are you already covered?
Even if your organisation does not buy D&O cover on behalf of directors you may be covered by a non-UK parent company. These often take out D&O for directors and directors of subsidiaries.
Is that policy suitable?
A policy from another country may not be compatible with UK law. D&O from the US often leaves open the choice of law to reflect the position in the relevant subsidiary’s home country, but this may not be the case with other foreign-based D&O cover. At the very least, directors in the UK will want the parent company to alert the insurance broker to UK-specific concerns and wordings, such as the concept of shadow director; the Bribery Act, and extradition concerns.
D&O insurance providers in London say that directors, especially non-executive directors, of UK based subsidiaries are demanding the provision of English law-specific D&O cover.
Here are the ten things you need to know about your D&O cover
- What is the limit of indemnity? Is it inclusive or exclusive of defence costs? Does it have a per claim limit? Are the limits sufficient for the directors given factors such as the number of directors, the changing nature of the company’s business and its geographical extent?
- Does the policy cover claims against former directors? What about shadow and non-executive directors? Does the policy cover directors after they have retired or resigned?
- Does the policy cover directors of all the companies in the group, including associated or joint venture companies (i.e. where the policyholder may have a minority shareholding)?
- Does the policy contain any significant jurisdictional exclusions or limitations so that cover may not extend to claims brought in foreign courts, for example in the US or Canada? Are these exclusions a relevant consideration for the company given its scope of operations?
- How does the policy deal with acquisitions during the policy period? Does it automatically extend cover to the directors of acquired companies? How about changes in the corporate structure during the policy period, for example will any mergers or takeovers affect coverage?
- What exclusions does the policy have and what impact might these have on a claim?
- Does the policy cover a director’s costs of fighting extradition proceedings to other countries where they might face criminal charges? Does the policy contain claw-back provisions for costs in the event of a successful prosecution?
- Does the policy cover a director’s costs of dealing with an investigation by a regulatory authority, as well as defending subsequent enforcement or disciplinary action?
- Do you fully understand when it is necessary to notify insurers of circumstances or claims to ensure cover under the terms of the policy? What has to be notified to insurers, when, how quickly and in what form?
- Does the company have in place the appropriate risk management systems for detecting and promptly notifying circumstances or claims against directors to insurers?