1. Directors’ and Officers’ Liability and Employment Practices Liability Seminar Chris McMurray, Senior Financial Lines Underwriter (Scotland) August 2015

2.  Background to D&O Insurance  Scope of cover  Directors’ duties and responsibilities  Directors’ disqualification and other potential liabilities  Where do claims come from?  Recent D&O Cases and Claims  The effect on the individual not just the entity  Employment Practices Liability Agenda

3.  What is D&O insurance?  Origins of the cover  Who should purchase the cover?  Claims trends  Premium trends Evolution of D&O Insurance

4.  D&O –Side A –Side B –Side C  Corporate Legal Liability  Employment Practices Liability Scope of Cover

5. Directors’ duties and responsibilities “Wrongful Act” The Companies Act 2006 sets out eight duties:- 1.Duty to promote the success of the company 2.Duty to exercise reasonable care, skill and diligence 3.Duty to exercise independent judgement 4.Duty to act within powers

6. 5.Duty to avoid conflicts of interest 6.Duty to declare interests in proposed transactions 7.Duty to declare interests in existing transactions 8.Duty not to accept benefits from third parties

7. B.Directors’ disqualification and other potential liabilities 1.Breach of duties under the Companies Act 2006 Sections 171 to 177 2.Wrongful trading under Section 214 of the Insolvency Act 1986 “if in the course of the winding-up of a company … the court … may declare (a company director) liable to make such contribution … to the company’s assets as the court thinks proper” 3.Company Directors Disqualification Act 1986 -Those concerned direct or indirect in promotion, formation or management of company -Up to 15 years disqualification 4.Liability under Contract e.g. Personal guarantees, shareholders approval, pre-incorporation agreements

8. 5.Bribery Act 6.Corporate Manslaughter/Homicide legislation 7.Health and Safety at Work, etc Act 1974, Section 37

9.  On the increase  Sources –Internal –External Claims

11. C.Recent D&O cases & claims i.Slander- insurer paid out £26,500 under D&O policy due to comments made in public by a manager against a clothing retail customer ii.Overstated company’s financial - insured paid out £10,000 under D&O policy Position after a director overstated solvency and profit levels to potential investors iii.Hefty damages award against - in ODC Securities v McGrath (2013) the High dishonest director Court awarded damages of £5 million against a dishonest director in breach of fiduciary duties iv.Three monkeys’ defence of- Aberdeen Sheriff awarded damages of no avail £100,000 to a liquidator against a former director who claimed to be unaware of wrongdoing taking place in case of McGregor Glazing Ltd v McGregor (2013)

12. v.Managing Director to repay- The Court of Session in Parks of Hamilton £50,000 (Holdings) Ltd v Campbell (2013) held that a director had been in breach of his fiduciary duties in a sale negotiation vi.Directorship defined for- High Court in UKLL Limited (2013) very usefully disqualification purposes sets out ten characteristics of “de facto” director 12 years disqualification imposed after losses of £70 million.

13.  Unlimited!!!  The company will protect me, won’t it?  Personal wealth at risk!!!  Is it worth the risk? Personal Exposure

14.  Scope of cover  Where do claims come from?  Development sin EPL claims since 2008  Difference between EPL and other similar covers  What underwriters are looking for Employment Practices Liability

15.  U.S – 1980’s, UK – 1990’s  Stand alone policy  Now in D&O forms in some part  Increased claims activity Background to EPL

16. Employment practices liabilities 1.“Wrongful Employment Practice” 2.Wide potential scope -Defence costs and claimant’s costs -Investigation costs -Awards of Damages 3.Important exceptions not covered -Criminal fines/penalties -Notice payments -Severance payments

17. 4.Main relevant EPL legislation a)Employment Rights Act 1996 b)Equality Act 2010 c)Working Time Regulations 1998 5.Can be costly… -Statutory caps on compensation of £72,400 or 52 weeks pay (whichever is lower) -No cap on discrimination awards -Interest on unpaid discrimination awards increased from 0.5% to 8% from 28/07/2013) 6.Recent case examples: a)£235,825 award in disability discrimination case (Wilebore cancer victim) b)£136,592 in an age discrimination case (Dixon : head groundsperson aged 58) c)£1 million award for institutionalised racism Browne including £5,000 aggravated damages as no employer apology d)Manner of dismissal can give rise to damages e.g. in Mark v Cann Hall PS – marching teacher off premises

18.  Claims activity increased since 2008  Recession  Increased coverage  Reduced deductibles  Employees understanding their rights Claims and the Evolving Environment

19.  Legal expenses  D&O  Limits available  Cover Differences

20.  Employee numbers  Claims activity  Territories  Salaries / turnover in staff etc  Occupation  Deducible levels  Limits available Underwriting

21. Questions?