I quote a phrase which I believe sums up the difficulties faced with being a director of a company. This was said by Donald Rumsfeld, the 13th Secretary of Defense for the United States of America in a committee hearing of the time, which though related to a major war, can be equally applied to business.
“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns - the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.”
The issue that you can face with being a Director of a major corporation, whether that be private or ASX listed, is that everyone has a great rear view mirror. The problem is we don’t know the future, and with the best of intentions, we can all still get it wrong. This happens fairly regularly in reality unfortunately.
As a director, your main objective is to grow the business in a financially sound and secure manner, and not ‘blow up the ship’ i.e. your ship.
With great interest, I note that even the previous darling of the market, aka class action supremo’s - Slater and Gordon - have had the unfortunate experience of making what they thought were reasonable decisions in investing heavily their shareholder funds overseas, backfire badly in their face.
With ‘experts’ such as Slater and Gordon getting it so wrong, then what about the rest of us.
There are something like 700 Federal, State and Territory laws which make directors liable for the actions of their companies, and in some cases their is strict liability requirements only, without any negligence on your part.
To assist in getting through this minefield, Business Insurance Specialists Pty Ltd can assist you in obtaining Directors and Officers (D&O) insurance. D&O Insurance is basically a compulsory coverage for listed corporations, and should be strongly considered by private companies also.
This policy acts as a supplement to your Directors & Officers (D&O) cover. It is in fact a prerequisite to the cover being granted that a D&O policy is in place with the Supplementary cover only operating on matters which are excluded from the D&O cover.
Supplementary Legal Expenses claims may originate from the following sources:
Claims could be made by the employees of the named organisation against the named organisation or its directors or officers. Those claims could be based on, amongst other things, (actual or alleged) wrongful dismissal, discrimination, misleading representation concerning employment or sexual harassment, etc.
A D&O Supplementary Legal Expenses policy provides cover to a named organisation and its directors, officers and employees. However, a D&O policy would not provide any cover to the named organisation and it would be left to defend these claims by themselves.
Also, depending on the extent of a D&O policy’s insured v insured exclusion, and the extent of who is insured as an officer, there might be a full cover for the director / officer / employees under the D&O policy.
Supplementary Legal Expenses insurance may also provide cover in respect of breaches, occupational health and safety laws or environmental laws – both of which have been the subject of heightened activity.
The D&O policy also excludes cover for breaches of environmental laws and most will exclude cover for bodily injury - hence occupational health and safety prosecutions.
A D&O Supplementary Legal Expenses policy provides cover for a named organisation and its directors, officers and employees. However, a D&O policy would again not provide any cover to the named organisation.
In addition, may D&O policies do not cover legal expenses incurred in respect of official investigations, examinations or enquiries.
D&O Supplementary Legal Expenses policy can provide cover, such as the Garibaldi meat contamination occurrence. If manslaughter or other criminal charges are made against either the directors or the organisation, then the Legal Expenses policy will provide defence cover.
Claims could be made by or on behalf of the named organisation against its directors or officers. Those claims could be based on (actual or alleged) breaches of statutory or common law duties, e.g. the duty to act with a reasonable degree of care and diligence.
D&O Liability insurance would usually exclude cover for claims by the named organisation against its directors or officers. However, D&O Liability insurance could provide cover for claims made on behalf of the named organisation by, say, the Australian Securities Commission or court-appointed liquidators. Covers in this regard would vary though, from policy to policy.
D&O Supplementary Legal Expenses insurance does not exclude cover for claims made by (or on behalf of) named organisation and could therefore cover legal expenses incurred by directors or officers in defending claims made by (or on behalf of) the named organisation.
Claims could be made by third parties, such as clients of named organisation, against its directors or officers. Those claims could be based on, amongst other things, (actual or alleged) breached of duty in the provision of professional services.
D&O Liability insurance usually excludes cover for claims arising out of the provision of professional services.
D&O Supplementary Legal Expenses insurance does not contain such an exclusion and could therefore cover the legal expenses incurred by directors and officers in defending claims by clients for breaches of duty in the provision of professional services (Provided that such legal expenses were not covered under the underlying Professional Indemnity policy).