This provides cover for claims made against company Directors or Officers from a variety of sources (e.g., the company, its shareholders, employees, competitors and regulators) arising out of activities in their capacity as directors or officers, alleging:

Definition of an Insured Person

Directors and Officers are those authorised to act on behalf of the company and manage its affairs for the benefit of shareholders and others who may come into contact with it.

There is no legal definition for "Officer". Case law has in the past held that an officer was someone 'managing the affairs of the company as a whole'. Recently, relevance has been attached to an individual in the corporate hierarchy of responsibility.

Corporate Manslaughter

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

The Government is considering tightening legislation this area. This will place even more stringent responsibilities on directors and will impact on companies.

The penalties that may be incurred as a result of criminal action are not insurable, although the costs of defending such an action can be.

Allocation of Defence Costs

Historically, a Directors' and Officers' policy 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. It is now possible indemnify both the company and the directors and officers in respect of defence costs.

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.

Employment Practice Liability

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.

Pollution

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.

Automatic cover (within a sub-limit) is provided for the costs of defending actions within the European Union for:

• 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.

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.

Former Director Protection

Former directors and officers remain liable for claims arising from occurrences taking place prior to their retirement.

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.