Directors' and Officers' Cover for Surveyors
14 September 2021
Directors, executives and other senior managers are increasingly exposed to claims by different business stakeholders, putting their personal assets, liberty and reputation at risk.
Strong corporate governance and procedures are essential for any business, but are you aware of the advantages of supplementing it with suitable Directors’ and Officers’ (D&O) insurance? Do you know what it is and why your firm may benefit?
Here we provide the answers to some frequently asked questions
What does a Directors’ and officers’ (D&O) policy cover?
Directors’ and Officers’ have specific duties, responsibilities and powers relating to their positions in managing a firm. If a director or officer of your company is found to have acted outside of their terms of reference, civil, criminal or regulatory proceedings can be brought against them. Directors’ and officers’ liability insurance covers the cost of defending these proceedings, as well as compensation costs that arise from an unsuccessful defence. A policy might also cover fines albeit this can only be to the extent that they are insurable in law.
A D&O policy would also provide cover to the Company itself where it has indemnified the Director or Officer.
What is the difference between a D&O policy and a Management Liability policy?
These terms are often used interchangeably. However, D&O is designed to protect the personal assets of company directors and officers in the event they are sued while acting in their capacity as a director or officer. Management liability will protect the company as well as its directors and officers against legal liabilities and statutory obligations.
We practice in a traditional partnership structure as opposed to being an incorporated company or LLP. Is D&O cover still appropriate and available to us?
Partners in a traditional partnership and even sole practitioners can be vulnerable to the same kind of exposures as directors regarding the management of a firm. The type of cover afforded by a D&O policy is therefore appropriate.
Does a D&O policy cover Directors’ and Officers’ who have left the firm?
Yes, cover protects past, present and future directors of a company. Like your PII policy, a D&O policy operates on a claims made basis, so will cover claims made or circumstances notified during the policy period – even if the relevant Director or Officer has left the firm. Most D&O policies also indemnify the personal legal representatives in case of death, insolvency or bankruptcy of the insured Company.
Will a D&O policy cover us for defence costs in relation to disciplinary proceedings before the RICS?
This is an area where particular care is needed as there is a popular belief that a D&O policy will provide cover for any disciplinary matters for the firm, principals and employees.
The D&O coverage is there to pick up management decisions made by the Insured Persons and we are currently seeing more D&O policies that expressly exclude claims arising directly or indirectly from the provision of professional advice and services. In some instances there might be a “carve back” available to apply some level of cover - such as a failure of supervision by Directors. It would be wrong for firms to assume that D&O policies provide “carte blanche” cover for defence costs incurred in relation to regulatory proceedings. You need to check the wording carefully to ensure you understand exactly what the position is.
If defence costs for disciplinary proceedings before the RICS are not covered under a D&O policy, then is there cover under our primary PII that must comply with the RICS’s Minimum Terms and Conditions (MTCs)?
One must not assume that there is cover under your PII Policy for disciplinary proceedings and there is a D&O Exclusion within the Minimum Terms and Conditions imposed by RICS. Therefore, it is key that you review your PII policy and in addition, purchase a D&O Policy to cover the issue of a D&O Exclusion within your PII Policy.
Are defence costs in relation to investigations covered under a D&O policy, or the MTCs?
As far as cover under a D&O policy is concerned, the position is the same as noted above for proceedings before the RICS. Exclusions relating to matters arising from the delivery of professional services are common and you need to check the policy wording.
As to the MTCs, there is cover for “investigations” for a sub-limited amount under the PII policy, provided they arise from a claim or circumstance notified under the policy.
Do D&O policies generally offer the same cover?
D&O policies differ quite considerably in the cover that they offer. There are no minimum or standard terms. When considering and comparing quotes it is important that you look at the level of cover and wording of each policy in order to understand what is and isn’t covered and which policy will best meet the needs of your firm.
How much cover does a Surveyor firm need?
This will vary depending on the size of the firm, the scope of the practice, and a view of their potential exposure to the issues covered by the policy in question. The usual range of limits taken by Surveyor firms is £1,000,000 to £5,000,000 with revenue levels of £500,000 to £7,500,000.
What is the current state of the market for D&O cover?
D&O is proving to be a difficult class of insurance in the current climate. Insurers have seen a considerable increase in claim settlements over the last 3-5 years which has now resulted in the D&O class of insurance being unsustainable as it was. As a result, insurers are either having to close down their D&O divisions, or alternatively are being required to increase the premium and deductible levels, and restrict the terms and conditions under their D&O policies. They are also reducing their appetite to provide D&O insurance in certain sectors.
However, the cost of D&O for Surveyor firms is considerably less that the cost of Professional Indemnity Insurance (PII) and it remains an important purchase that will provide directors and officers with peace of mind in an environment where there is potential for claims with a substantial financial impact.