Directors & Officers Insurance

Most Right To Manage or management companies have a low cost but valuable policy - Directors & Officers Insurance, or Management Liability Insurance. But until you become a Director, the chances are you have probably never heard of it! So, what exactly is it and when might you want a policy?

Directors & Officers

Firstly, who is it for? Directors are the individuals appointed to lead, or direct, a limited company. Depending on the specific company, they are normally the ones making day-to-day decisions about how funds are spent, what works are required, service contracts, and the annual service charges. They are usually empowered with the authority and power of all the members, unless otherwise instructed at an AGM.

Other officers can include the Company Secretary, as well as roles like the CEO, COO, etc. For a management company, the secretary will usually be an administrative individual that coordinates all the company documents and dealings, handles matters at Companies House, and typically deals with the accounts and finances.

Unless a managing agent is appointed to fulfil the Company Secretary role, it can be a large administrative burden for an individual resident. The role of Director is almost always an owner, and particularly for complex sites this voluntary and unpaid role can carry a lot of responsibility.

Management Liability

So what is the liability involved? The relevant risks relate to allegations against individual Directors or Officers acting for the company. This can range from neglect of duties or misleading comments, to genuine errors or mistakes, as well as data breaches.

Various parties could bring a claim against the company and its officers; shareholders, leaseholders, third party contractors, employees, residents - the list goes on. The most common call on D&O insurance is to pay for the directors or officers legal costs in defending a claim brought against them and to pay a settlement if required as a result of a claim.

Crucially though, D&O insurance does not usually cover deliberate wrongful acts. It is important for Directors and Officers to remember to always act in good faith and with the best interest of the company and its stakeholders in mind, along with always seeking the proper advice for any circumstances that they may not know for certain how to approach.

Employment Practices Liability

EPL relates to employment related issues. This is typically relevant for larger developments, where the management company employs a caretaker or concierge on a PAYE basis - directly salaried by the company. In these cases of direct employment, EPL can help protect Directors and Officers, as the employer, from claims such as discrimination, harassment, or wrongful dismissal.

These allegations can come from employees of the company, but may also arise from former employees or potential employees / applicants, and so regardless of current relationships it is important for companies with such staff to maintain this cover.

Corporate Legal Liability

Whereas Directors & Officers insurance protects individual people from claims while acting in a professional capacity, CLL defends claims directly against the company. This often relates to claims for breach of contract (whether leases or service contracts), health & safety issues (potentially causing injury) or even corporate manslaughter.

When might you need it?

In short, every company needs cover. Employment Practices only applies when the company is directly employing staff, however D&O and Corporate Legal Liability are arguably essential for every company.

One of the main risks is quite simply that a company, and therefore the Directors, can be an easy target. Irrespective of the merit or authenticity of a claim made, the company or Directors must defend against accusations. This usually includes appointing a solicitor for legal advice and presenting a defence, and the costs are often measured in tens of thousands of pounds, rather than just a few thousand. This can be a huge risk to both personal finances as well as company funds, even if the accusations are completely unjustified.

Genuine claims

There is also a very real possibility of companies or Directors accidentally getting things wrong. These faults, even if accidental, can lead to significant claims reaching hundreds of thousands of pounds. Assuming most Directors aim to proactively avoid mistakes and liability, it stands to reason that any Director can be at risk of a misguided decision or an unplanned error without realising. Much like home insurance, these policies are invaluable to help individuals cope with sudden and overwhelming claims that may be otherwise unpredictable.

For the relatively low cost of a Management Liability policy, it is important for all Directors to carefully consider the value it provides and arrange a suitable policy. These policies will vary between different companies, as will the limit of liability based on the size of the development.

If you need any help or guidance in relation to insurance, please contact our team who will be able to direct you to an experienced and supportive broker for detailed advice.