Directors and Officers Liability Insurance Policy Recoveries in Insolvency

Insolvency practitioners are often confronted with a wide variety of challenges when managing the assets of an insolvent estate. One such asset that must not be overlooked is a Directors and Officers Liability Insurance.

As an insolvency practitioner, it is important to understand the potential value of a Directors and Officers Liability Insurance, and how to best leverage it for the benefit of the insolvent estate. If properly managed, claims under these policies can prove to a significant source of recovery capable of realisation or assignment.

Coverage at a glance

A Directors and Officers Liability Policy is an insurance policy that provides financial protection to directors, officers, and other corporate employees from the risks associated with their positions, including whether they are sued for damages based on a breach of duty in their capacity as a director or officer of a company. The policy covers the costs of defending against legal action, as well as any resulting liability costs. It can also cover the costs of settlements.

Conduct a Thorough Review of the Policy

Insolvency practitioners should ensure that they thoroughly review all Directors and Officers Policies in order to identify all relevant coverage. This includes reviewing the policy language to determine the scope of coverage, the size of the policy limits, and any exclusions or limitations.

It is a common misconception that Directors and Officers Liability Policy cover ceases on insolvency. However, a though review of the policy will often identify there be scope to give notice of claims, or circumstances giving rise to claims, during the remainder of the policy period. This because, most policies will continue to provide cover for claims made against directors and officers up until the expiry of the policy, although only in relation to acts and omissions prior to insolvency.

Who is Covered

Directors and Officers Liability Policy generally provide three core coverages:
Most policies will cover both current and former directors. This coverage may as well protect shadow and de facto directors, and employees acting in a managerial capacity or when they are sued alongside directors and officers. It is also important to determine who is covered under the policy, as this can have a significant impact on the available assets.

When the Policy Expire

Another common misconception is the context of insolvency is that claims can be notified after the policy has expired. This may not be the case, unless the policy provides for an extended notice period.

Directors and Officers Liability Policies generally operates on a ‘claim made’ basis. This means that the cover is triggered by claims being made against the insured, and notified to the insurer during the policy period. Therefore, in an insolvency context, it is essential to consider the earliest possible whether there are grounds, or potential grounds, to pursue a claim against the directors, or any of them, and on what basis.

Disputes with the Insurer

If necessary, insolvency practitioners may need to take legal action in order to ensure that the Directors and Officers Liability Policy is enforced. This may include filing a formal complaint against the insurer with Lloyd’s, taking their claim to the Financial Ombudsman Services or event taking the insurer to court in order to recover any losses that may have been incurred due to a breach of the policy.
At Blake-Turner, we understand the complexities of Directors and Officers Liability Policies claims and the process for recovering losses in insolvency. Our experienced lawyers have the expertise to help insolvency practitioners as well as directors and officers to identify and pursue relevant insurance cover, and to ensure that they receive the best possible recovery from their policy.

We have recently advised a company and its joint administrators in connection with a Directors and Officers Liability Policy and secured a successful outcome after filing a stage two complaint to Lloyd’s.

If you are an insolvency practitioners, director or officer of an insolvent company, Blake-Turner can provide advice on the terms of your Directors and Officers Liability Insurance, making a claim and guide you through the process.

For more information on Directors and Officers Liability Insurance contact Blake-Turner LLP

Author: Glayson Tavares-Costa, Trainee Solicitor at Blake-Turner LLP