Directors’ and Officers’ liability insurance (D&O) is payable to directors and officers of a company as indemnification for certain losses or advancement of defence costs. In the event, any such insured suffers a loss, as a result of a legal action brought for alleged wrongful acts in their capacity as a director or officer.
D&O policies respond by reimbursing the company when indemnification has been provided to an individual insured (“Side B” claims), or by paying on behalf of the individuals when no indemnification is available from the company (“Side A”).
Losses to shareholders remains a key driver and source of claims trends against directors and officers of publicly traded firms, and Shareholder Class Actions against the company itself are also covered (“Side C”).
Directors and officers in the UK construction sector face unprecedented challenges. It’s crucial to understand the evolving risks and ensure you’re protected with the right D&O insurance coverage.
Key risks are:
- COVID-19 – Aftermath and Insolvency Risks: Reports estimates 47,000 businesses were in financial distress in the fourth quarter of 2023. A 25.9% rise compared to the third quarter (and up 32.6% in construction)
- Brexit-Related Challenges: Brexit’s impact on trade, regulations, and supply chains necessitates adept navigation to avoid operational and legal issues.
- Economic Challenges: Rising living costs and inflation add financial pressure. Effective cost management and decision-making are crucial to mitigate these impacts.
- Supply Chain Disruptions: Global supply chain challenges, heightened by the pandemic and geopolitical tensions, are leading to operational delays and increased costs.
- Regulatory Compliance and Sanctions: Increased international sanctions and regulatory scrutiny require more resources for compliance. Non-compliance risks legal consequences and reputational damage.
- Increased Borrowing Costs: Higher interest rates mean increased lending costs. D&Os must manage financial risks, including debt and liquidity, to avoid financial distress.
And finally, ESG Risks.
The potential rise in ESG litigation brings new legal challenges for D&O’s including:
- Disclosure Requirements: ESG reporting necessitates accurate, comprehensive reporting to avoid legal claims
- Greenwashing Risks: Misrepresenting environmental or social practices can lead to claims.
- Structural integrity & safety: Total amount of monetary losses as a result of legal proceedings associated with defect and safety-related incidents.
- Breach of Duty: Failing to meet ESG commitments or address climate risks could result in breach of duty claims.
Gallagher always look to innovative ways of assisting our clients. Gallagher’s D&O Team specialises in working with clients to understand their exposures, looks to the market for relevant claim and loss intelligence, and works together with the client to identify and assess what they have in place to mitigate risk. We also provide best practice recommendations for how the firm can further improve and mature the risk controls it has in place. This entire process is known as a ‘D&O Risk Assessment.
We have since developed the ‘risk assessed approach’ to an ‘ESG Risk Assessment’ and are working with our key clients to understand their business model and how it generates ESG exposure through market leading data. We again assess the controls in place and assist our clients with a risk treatment plan to help reduce their ESG exposure. At the core of our offering we are assisting our clients in reducing the likelihood of litigation.
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