Employment Practice Liability

Increasing European legislation and high profile media coverage have led to Employment Practice claims becoming one of the most common types of claim made against directors. Like many areas of litigation, employment disputes first attracted attention in the US, but are becoming increasingly common in the rest of the world.

A director may incur personal liability for such claims as:

• racial or sexual harassment or discrimination
• unfair dismissal
• discrimination in connection with disability
• wrongful disciplinary action
• failure to promote
• deprivation of career opportunities
• negligent employee evaluation
• failure to provide adequate employee policies and procedures

A director need not be involved personally in an issue to be involved in an action. Directors are responsible for preventing such problems occurring. It is worth remembering that even if a director is innocent, he will still have to fund his defence himself if he is uninsured.

Cover for Employment Practices claims is a feature of the policy. Cover includes liability for mental anguish and 'Insured versus Insured' disputes, provided that the actions are not brought in the US or Canada or based upon US or Canadian law. Cover can be extended to provide for this exposure.

Corporate Manslaughter

Corporate manslaughter has attracted widespread media coverage. Essentially it is the criminal offence of directors failing to ensure that the people in the care of the company come to no harm.

The issue has come to prominence after recent rail crashes and allegations that companies may have put profits ahead of safety. In response, the Government is considering tightening legislation this area. This will place even more stringent responsibilities on directors and will impact on companies of all sizes which have members of the public under the care.

The penalties that my be incurred as a result of criminal action are not insurable, although the costs of defending such an action can be. This Insurance offers peace of mind by including such cover.

Pollution

Environmental protection legislation has been a particularly prevalent feature of the last few decades. The number and complexity of statues concerning the environment has increased in the UK, the European Union and the rest of the developed world. Similarly, regulatory bodies are being given greater power to enforce the legislation and make someone pay to remedy any alleged infringement. Pressure groups and media attention further exacerbate the effects of such legislation on business.

The Environment Protection Act 1990 is of particular relevance to the director. The Act places onerous responsibilities on directors and officers; they can incur personal liability through a direct action and in some cases even in the absence of intent or negligence. Directors may face actions from shareholders, regulatory bodes, employees or any third party who has been affected by their actions.

The policy responds by providing automatic cover (within a sub-limit) for the costs of defending within the European Union:

• criminal or regulatory proceedings arising out of pollution, seepage or contamination
• shareholder claims resulting from allegations that the company's share capital value has declined due to pollution.

Allocation of Defence Costs

When a company is in dispute with a third party and commences legal proceedings in an attempt to resolve the dispute, it is a common retaliatory tactic for the defendant to name the plaintiff's directors and officers alongside the company in any counterclaim. This simple example illustrates how an inter-company dispute can escalate to involve the individual directors in litigation.

Historically, a Directors' and Officers' policy has only covered the liabilities of the individuals and not the company itself; the insurer would have allocated the defence costs proportionately between the company and the directors. In response to this the policy will advance 100% of the defence costs, thereby removing uncertainty over what proportion of costs will be met by the Insurer. This means that we indemnify not only the directors and officers in respect of defence costs, but also the company.

In addition, in the event that a claim is only partially covered under the terms of the policy the defence costs will be advanced in full. We make no deduction for aspects of the claim not covered under the wording, thereby giving peace of mind to directors that they will not have to fund part of the defence costs themselves.

Investigation Expenses

In the current regulatory climate there is an increasing focus on the affairs of companies and their officials. Directors and officers face the growing possibility of becoming involved in an official investigation, which may be into the affairs of the company itself or the role of the individual director. The Department of Trade and Industry and the Commission for Racial Equality, for example, can order such investigations.

Although this area of corporate liability is not often highly publicised, it is important that company directors are aware of the potential liability. If called to give evidence before an investigation it is likely that they will require legal advice before making a presentation.

The Directors' & Officers' policy recognises this by offering wide coverage for investigation expenses. To ensure comprehensive cover the policy advances legal costs, charges and expenses where the Insured Persons are required to give evidence or attend an investigation "by reason of their capacity as a Director or Office". Cover includes any investigations into other companies where the Insured Persons have become involved as a result of their position as director(s) or officer(s) with the Insured Company.

Outside Directorships

When entering into a joint venture or making an equity investment, it is common for a company to request that one or more of its employees serve on the board of the outside company to monitor its performance. The director or employee appointed is then exposed to any liability arising from this appointment. As part of our commitment to provide full and comprehensive cover, the policy automatically includes all appointments to an outside board.

The only restrictions are appointments to financial institutions, certain exposures in relation to the US and claims arising out of the failure of computer systems.

Former Director Protection

Former directors and officers remain liable for claims arising from occurrences taking place prior to their retirement. The policy covers them for claims made during the currency of the policy and for a further six months if the policy is not renewed.

Acquisitions

When a company is undertaking an expansion programme it may establish or acquire new subsidiaries. Cover is then required for the directors and officers of these companies for all ongoing acts. To ensure that the policy responds effectively to the changing corporate structure the wording automatically covers all new subsidiaries or acquisitions, whatever the size, at no additional premium.

The only companies not automatically covered are US and Canadian companies and those registered on North American

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