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Directors Liabilities: the risk could be greater than you thought

02 Jun 2017
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In association with Quantum

Lee Rhodes, director of Quantum Underwriting Solutions, explores why more and more directors are arranging personal Directors and Officers protection.

The message that company directors in the UK are putting their personal assets at risk when running a business is clearly resonating with them. The first five months of 2017 has seen an almost 100% increase in the number of directors arranging personal directors and officers insurance, when compared to the same period last year.*

Most of us would accept that society continues to be more litigious and very few directors would argue that they face an ever more complex legal and regulatory environment. However, why are more and more directors arranging personal cover?

Our conversations with directors tell us that there are numerous reasons they decide to take out a personal policy:

The company doesn’t buy cover. Some businesses are unable or unwilling to arrange a corporate policy which means they would have to use the company’s assets to defend a director. If a director is not confident the business has sufficient assets, then the personal exposure is far greater.

I have left the company. Whilst a corporate policy will normally indemnify a retired director it can only do that if such a policy is in force at the point the claim lands. A departed director cannot be certain that will be the case which is why so may choose to have personal cover as a back stop.

The corporate policy contains exclusions. All corporate policies will exclude certain claims meaning its protection is removed. There tends to be less exclusions on a personal policy, for example, a personal policy does not exclude claims brought by a major shareholder.

The corporate policy cover could be exhausted. The amount of cover under a corporate policy spans across all claims made in a policy period (typically one year) and is also used to defend all directors. If a corporate policy carries a low limit of cover then it is not unfeasible that this could be used up. In this scenario, the company would be left to fund subsequent defence costs, awards and damages and if they were unable to do that then the director would need to meet those costs. Having a personal policy means a director benefits form an extra layer of cover that isn’t shared with others.

Director’s appreciation of risk is clearly changing and so is their behavior as to how they insulate themselves from those risks.

IoD members can access up to 35% discount on policies from Chubb Insurance and Quantum Underwriting Solutions, the IoD’s preferred providers of directors’ liability insurances.

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Quantum

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*Source: Quantum Underwriting Solutions Ltd year-to-date new sales 2017 versus 2016

The views expressed in blogs such as the above are those of the author and do not represent the views of the Institute of Directors.

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Lee Rhodes

Lee Rhodes is an insurance professional with 17 years' underwriting and 12 years' broking experience across all major disciplines. He is an equity-owning director in niche insurance broker Quantum Underwriting Solutions, which offers specialist advice and insurance solutions to affluent clients with significant personal assets across Europe.

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