How to sue a company director



category Claims

To School of Risk home
online

Tribunal Min Master

The case for the defence

If you’re toying with buying directors’ and officers’ insurance, you need better reasons to shell out than just ‘it’s a good idea’.

So why, exactly, is it worth it?

Well, we dug around and found some cracking examples of actual claims against directors and their companies. Because there’s nothing like hearing it from the horse’s mouth.

You want good reasons? Here they are:

 

The customer’s sometimes right

Sounding off in public about difficult customers is a basic business no-no.

One company that didn’t remember that found themselves the subject of some damaging negative publicity. This caused a sharp downturn in profits, prompting a disgruntled band of shareholders to sue the company and its directors. Incompetence and mismanagement were just two of the alleged offences.

 

Can’t see a problem

Anyone, in theory, can sue for discrimination. (Because otherwise it’s discrimination, isn’t it?)

An estate agency’s directors faced just such a claim when it was alleged they’d breached their statutory duty by not making their website accessible for blind people.

 

Taking the heat

Whether they like it or not, company directors are responsible for things they don’t even know about.

Like the guys in charge of the firm whose heating system was slowly polluting a nearby lake. Unbeknownst to them, the underground pipes leading to and from their oil-fired boilers had fractured, allowing oil to seep through the soil.

They were prosecuted and found guilty of breaching the Water Resources Act 1991.

 

You scratch my back, I’ll stab yours

Beware the favour for a friend.

A director breached his authority in appointing an employee’s company to do some work on the company’s behalf.

The contract was unexpectedly cancelled halfway through, leaving the employee out of pocket. The director was sued for non-payment of fees and the costs his employee had incurred.

 

Dot the Ts, cross the Is

No one likes paperwork. But getting it right is important.

For example, one company fell foul of the Department of Trade and Industry because of their notepaper and invoices. The DTI alleged that the directors had breached the Companies Act by not properly identifying the company on its paperwork.

 

Cause for alarm

Being prepared for a disaster is basic business practice.

So if a fire wipes out your office, for example, you’ll know you’ve got every base covered.

In the aftermath of just such a thing, the accounts department of one unfortunate business discovered their insurance hadn’t been regularly updated by the director responsible. Turns out they were significantly underinsured. Consequently, the insurance settlement wasn’t enough to cover the cost of replacing everything and they had to find additional funds.

The other directors sued the director responsible for the shortfall.

 

Trading on the past

Every business keeps a close eye on its competitors. That’s probably going to include you if you leave and join another company.

One managing director found himself in bother when his former employer alleged he’d been less than complimentary about them after moving on and had directed some of their existing customers to his new company.

They sued him personally for their financial losses and reputational damage they claimed to have suffered.

 

And so on and so on.

What’s clear from these claims, and the thousands of others you’ll find by Googling ‘directors and officers insurance claims’, is that directors are slap bang in the line of fire.

Because anyone can have a pop: shareholders, customers, regulators, employees, competitors. They’ve all got an angle, and the potential to cause trouble.

That matters because none of these claims mention what you really need to know. That, as a director, you face potentially unlimited liability for the decisions and actions you take. Not only that, but you’re personally liable too. If things go wrong, you have to pay.

So is it worth it?

Best not find out the hard way.

 

(Thanks to Angel Underwriting for their help with this article.)

 

Image / photographer: Tribunal Min Master | http://www.flickr.com

More from this category

Claims-in-a-cartoon #2: the five-grand typo
Claims-in-a-cartoon #1: free advice costs thousands
Why won't my insurer pay my claim?
Buy online in minutes. Less admin, more business!
yay banner image