Directors and Officers Indemnity - a practical guide Richard Packman Director Heritage Insurance Limited
Directors Duties what should I be doing? Directors Exposures where am I exposed? Insurance Protection how am I protected? The Insurance quotation and application stage what do I need to know? The Insurance cover what can go wrong? what else do I need to be aware of?
A Director s Duties To effectively manage and direct the business of the company Be aware of the local statutes and regulatory guidelines which will affect the management and direction of the business To act in good faith To fulfil fiduciary duties To show duty of care to shareholders, investors, creditors, employees and fellow directors
A Director s Exposures Allegations of :- mis-management Bad decisions Wrongful Acts Director s personal assets / wealth at risk Allegations made by whom...? Risk = liability = financial loss incurred by other parties Decision = Retain...or...Transfer
A Director s Exposures Board of Directors appointed to make decisions on behalf of the fund. Directors have a fiduciary responsibility to the fund. Their personal liability is unlimited. Directors are particularly exposed as they are reliant on 3 rd parties for delivery of services and bound by their Prospectus. Funds contract with 3 rd parties for provision of all services, management, administration, promotion and distribution. Directors are therefore potentially vicariously liable for provision of services to shareholders.
Allegations made by whom...? Shareholders alleging : poor performance of fund fund erring from prospectus breach of duty / contract quasi class actions The Company alleging breach of duty / contract of directors following a change in board composition (actions against predecessors) derivative actions initiated by shareholders Creditors in the event of default on loan provision Regulators for breach of statutory or local requirements Official Receiver/Company Liquidator after investigation into the conduct of the company and its directors
Insurance Protection Directors & Officers Indemnity Policy Insures against Wrongful Acts committed by the directors Wrongful Acts are defined as :- breach of duty, breach of trust, warranty of authority, error or omission, neglect, mis-statement, misleading statement, libel, slander, misrepresentation, or any other matter claimed against the directors in their capacity.
Insurance Protection Directors & Officers Indemnity Policy Insures against Wrongful Acts committed by the directors Wrongful Acts are defined as :- breach of duty, breach of trust, warranty of authority, error or omission, neglect, mis-statement, misleading statement, libel, slander, misrepresentation, or any other matter claimed against the directors in their capacity.
Directors & Officers Indemnity Policy Designed to provide protection to the individual, ie, the director. Pays for - Legal costs in defending claims - Costs of any awards granted / settlements made - Plaintiff s legal costs Legal costs for a formal investigation or regulatory action Costs to fight extradition proceedings Costs towards protection of reputation Spouse or civil partner protection
The Insurance quotation and application stage Fully completed, signed and dated proposal form Prospectus / Memorandum / Offer Document (even if in draft) Latest audited Report and Accounts Latest investor / fund performance report(s) CV s of Directors Structure chart - subsidiaries, SPVs Full details of any claims or of past or current circumstance
Additional Information... Entity domicile Current or proposed assets Minimum assets needed to launch Is the fund geared or leveraged - if so, outline percentages and guidelines, loans and lending, terms, etc. Investment or shareholder base split the investor type geographical location Full disclosure of any USA involvement
The application : what is regularly missed? Signatures or dates on proposal forms Questions Full review of potential matters or potential circumstances Report and Accounts Due diligence regarding disclosure of material facts Claims and circumstance history Timely submission of the proposal form
The Insurance cover what can go wrong? Non-disclosure Reporting restrictions or limitations time frame Admitting liability Taking legal advice without referral to Insurers Not reading your policy Prior litigation dates / retroactive dates (date of first inception of coverage) Takeovers, Mergers/Acquisitions, Listings (be aware of the terms) Policy exclusions and limitations
The Insurance cover what can go wrong? The notification process: when to claim First awareness of a matter, action, act or event that may give rise to a claim in future An intimated or implied threat or allegation of wrongful act made against a Director of Officer A written allegation A formal letter
What else do I need to be aware of? Regulator s requirement(s) for insurance Codes of Practice Limit of Indemnity..? any one claim in the aggregate costs inclusive / exclusive? Additional insurance covers...? Eg; Professional Indemnity Fidelity / Crime
What else do I need to be aware of? Directors checked SLA s with service providers? Have you had the insurance cover fully explained? Each director and Officer should be fully aware of the insurance protection provided and ideally should be provided with guidelines describing the policy s operation and how to comply with its terms and conditions Extent (or limitations) of cover provided by your employer s PII policy
Directors Assets Directors and Officers Liability Insurance Investment Management Fund Administration Contracts for provision of services Board of Directors Custodian Liability for provision of services Investment Fund Auditors Investment / return Threat Shareholders
Investment Advisor IA Agreement Hold Harmless...? Investment Manager Investment Fund 18
Investment Advisor Investment Manager Director 1 Director 2 Investment Fund Director 3 Director 4 19
Questions...?
Contact Richard Packman ACII, Chartered Insurance Practitioner Heritage Insurance Limited La Chasse Chambers La Chasse St Helier Jersey richard.packman@heritage.je Direct Dial: +44 (0) 1534 706503