Owners of companies and country manager are by law responsible, with their own holding, for damages caused to third parties, or to the company they represent, for failure to follow regulations and standards.
Their wrong decisions, as described by the 7 cases here below, may be legally expose directors and officers in front shareholders, business partners, customers and employees.
Being without proper insurance cover may expose a manager to pay high defense costs with his own pockets.
Understanding the legislation of the country where we work is now a priority. Local legislation suddenly may impose new obligations on executives and managers: therefore, the risk of non-compliance with laws and regulations is very frequent.
This is what Allianz reports: the number of manager who have been taken before the court is increasing: from 2010 to 2016, 576 claims were taken into consideration in 49 countries.
Most of them concerns precisely the failure to comply with the laws and regulations of the country in where they operate.
It follows negligence and inexperience in running the company.
The normal diligence has been replaced by the specific one provided by the nature of the role and the specific competences of the manager in the company.
Several claims involve regulatory investigations and civil litigation in more then one jurisdictions.
Loss of business data, due to computer attacks and reputation damage and good company name, are added as top causes leading manager to appoint a lawyer to defend themselves in court.
7 specific cases of manager’s liability.
We offer a brief overview of claims that really happened. They concern both safety at work, damage to the environment and brand reputation. We have included two cases about employee sex discrimination and unauthorized vehicle movement.
Violation of occupational safety regulations.
An employee dies at work. The heirs, together with the local government regulating compliance with health and safety regulations, sue the employer for failure to comply with the local legislation.
Accident at work.
An employee of a company specialized in the processing of timber, during the cleaning of a machine, suffer the amputation of 3 phalanxes. Local authorities find that the wood cutting machine was devoid of suitable protective equipment.
Environmental damage.
A company operates in the cosmetics industry. Municipal authorities find out that a large amount of pollutant material has been poured out of old pipe line system into the public sewer system. The management and the owners of the company are sued by both local authorities for environment damage, bad administration and damage to the good name of the company. During the legal trial it was proven that the board was aware of the bad conditions of the pipelines but nothing was done to limit the damage.
Use of company credit card for personal reasons.
The manager of a company in liquidation is sued by the owners of the company where he worked. It was proven that the personal car was repaired at company’s expenses. The workshop, unable to collect the money for vehicle repair costs, turned directly to the owners of the company who discovered the abuse.
Damage to the consumer from contaminated product.
Directors of food-producing and freezing company are sued for violation of the local legislation on long life product conservation. In the specific case, the company did not produced and stocked the product conforming to food hygiene and long life regulations.
Discrimination at work.
A company employee sues his ex-employer for sexual discrimination at work. Specifically, it was proven that the director promised the worker a promotion in exchange for sexual performance. That’s why she was forced to leave the job. The legal trial involved not only the chief executive but also the company’s management.
Unauthorized Vehicle Damage.
The manager of a company is sued to personally respond to damage caused by a vehicle which, without a license plate and a regular permit to drive, caused a road accident. The forklift, in the case, came out from the business perimeter to load the goods in a warehouse of the same company on the other side of the road.
Why to buy “Directors and Officers” insurance?
Directors’ and officers’ liability insurance – also known as D&O insurance – covers the cost of compensation claims made against business’s directors and key managers (officers) made against them by shareholders, investors, employees, regulators or third parties.
Alleged wrongful acts are: breach of trust and duty, neglect, errors, misleading statements, wrongful trading.
D&O policy provides financial protection: defense costs and financial losses fully covered.
It may be concluded by:
1.a single insured person: in this case, the insurance is ad personam. The insured may choose the indemnification limits to be paid by the insurer in case of request of damages.
2.a single company: in this different case, it is the business firm which will obtain cover for all the managers and executives of the company.
The policyholder is free to determine the premium of the insurance depending by several factors like limits, deductible, territorial scope and retroactive coverage.
In conclusion:
Each country requires that directors and officers respect its own local legislations.
It is recommended to maintain always open communication with authorities, investors and employees and verify- together with their trusted lawyer and risk managers- if local legislation prescribes specific obligations.
This control risk management process is very useful. It gives the advantage to:
1.highlight the compliance of the company’s activity with local rules and regulations;
2.actively prearrange and organize all those measures with which the company may limit its risk exposure and support the directors to prevent claims that may significantly affect not only the company’s assets but also the manager’s personal holding.