If my business is worried about insolvency can I still buy management liability (D&O) cover?
The fact that a company is at risk of insolvency, or even already in administration, is not necessarily a bar to getting insurance for potential management liability.
Generally speaking, the cover available is broad. However, insurance cover is only part of a company’s overall risk management programme. Directors should seek legal advice to mitigate against the risk of claims arising in the first place, rather than relying solely on insurance. It will be reassuring for an underwriter if a director is assessing the risks they face with suitably qualified professionals.
Where insolvency is a risk, what information will a D&O underwriter want?
The placement of every D&O policy is a collaborative exercise between the insured, their broker and the insurer. If insolvency is a risk, there is likely to be closer scrutiny of the company’s finances, its relationships with its creditors and any future business plans. Insurers are likely to raise specific queries about any potential issues relevant to the reported financial difficulties. The purpose of this exercise is for everyone to be comfortable with the cover under the policy.
What is not covered under a D&O Policy?
In the context of insolvency, D&O policies typically provide cover to directors for claims made by administrators or liquidators as well as for regulatory investigations including by the Insolvency Service, and disqualification proceedings.
However, claims (or circumstances) directors knew about prior to the insurance cover are normally excluded, which might be relevant if an insolvency event has taken place before the cover incepts. D&O policies will also not protect dishonest or fraudulent directors and insurers cannot provide cover for matters that are uninsurable under law such as some fines or penalties, or personal tax liabilities imposed on a director.