D&O insurance: can a director be protected from liabilities which arise from a previous position?

Once you leave an organisation’s employment, the general view is that your relationship with that former employer is over. However, for senior individuals such as directors with decision-making responsibilities, that is not necessarily the case. In the current environment, many directors, other board members and/or senior individuals with decision-making responsibilities of UK companies may be concerned about their potential personal exposure, especially to corporate governance, environmental, ESG and pandemic-related claims which are currently being discussed and may take some time to formulate into real claims.

In the event of allegations of wrongdoing in a previous position, could a Directors and Officers’ Policy (“D&O Policy”) or other forms of liability insurances held in the name of a previous employer provide some financial protection against the allegations?

A D&O Policy offers liability cover for current, future and past company directors and other board members, to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties.

A D&O Policy would also allow for a corporate entity to seek reimbursement from the insurers of any legal fees or redress it has paid out to a director or board member or senior individual that has been defended against any allegations of wrongdoing.

A D&O Policy should allow payment of legal fees even if there is an allegation of fraud or deliberate wrongdoing.

This article covers the key questions directors, board members, senior individuals and their advisers should ask to establish if they are covered by a D&O Policy or some other form of liability insurance in the event of an allegation of wrongdoing.

How can I determine if D&O or liability insurance will cover allegations of wrongdoing?

In order to determine whether a D&O Policy or liability insurance will cover allegations of wrongdoing, the following questions should be asked to establish i) the circumstances which would benefit from a D&O Policy or liability insurance, and ii) whether current or former directors or board members should have the benefit of a D&O Policy or some other form of liability insurance:

1. Was the director or board member a party to any decisions that could result in litigation and/or an investigation against the employer?
2. Did the director or board member report any concerns about the employer either internally or externally?
3. Is there existing litigation and/or investigation against the employer that either involves or could involve the director or a board member?

If the answer to any of the above or similar circumstances is yes, the following questions should then be asked:

1. What is the director or board member’s role and title?
2. What type of allegations of wrongdoing have been made/could arise?
3. Is there a D&O Policy?
4. What other liability insurances have been issued to the employer?
5. If liability insurances exist, request a copy from the employer or the insurance broker.

Once a D&O Policy or some other form of liability insurance has been identified, the document’s terms and conditions should be complied with in order to ensure that the benefit of the director/other board members/senior individual under the insurances is preserved.

Establishing whether a D&O Policy or other forms of liability insurance will provide cover is case-specific and it is therefore prudent for directors, board members or senior individuals to seek specialist advice on the terms of any D&O Policy or other forms of liability insurance.

If you require advice on D&O Policies or any forms of liability insurance, please contact Nilam Sharma using the below details.