Claim Examples - Directors and Officer and Employment Practice Liability
The claimant was officially dismissed from her employment for gross misconduct on the grounds of her failure to pass a test. The claimant subsequently sued her former employers together with a number of her former colleagues one of whom was deemed to be an Officer of the company, alleging sexual discrimination and sexual harassment. The complaint was ultimately settled for £50,000, but the insured also incurred defence costs. Insurers contributed to both the settlement as well as the defence costs.
The estate of a deceased employee claimed that a Director of the company employing her was responsible for arranging her death-in-service life insurance cover and had negligently failed to do so.
Defence cost: £16,000
A company’s Managing Director was quoted in two newspaper articles as having concerns as to the propriety of the owner of one of the company’s suppliers. The owner claimed for defamation. The claim was eventually dropped, but only after insurers had funded the Managing Director’s defence costs.
Defence costs: £32,000
In the two weeks before their company went into receivership, two Directors allowed their company to continue to trade, although knowing that it could not avoid going down. Trading during the two weeks created a VAT liability of £50,000, which, because of the receivership, was not paid to the Crown. For trading while insolvent the Directors received orders disqualifying them from being Company Directors. They succeeded in having the orders overturned on appeal. But only narrowly: the court criticised them for failing to take advice, but their incompetence was not so great that they should be disqualified.
Defence costs £100,000
A Marketing Consultancy successfully made a claim against its former Managing Director for diverting parts of the business and its opportunities to his new company. The court held that the Managing Director misused the property of the agency, breaching his fiduciary duty; they also ruled that he was accountable to the company and should personally pay compensation.
Defence costs £26,000
14 Directors of a privately owned delivery business were banned after the company went into insolvency and was the subject of a subsequent DTI investigation. Only two Directors ran the business on a day to day basis, but all Directors were found to be responsible for the books and records not being up to the correct standards. Defence costs were incurred to defend the legal actions against the Directors.
A Director signed a cheque but did not include the word ‘Limited’. The cheque was not honoured and by the time the corrected cheque was re-presented, the company had gone into liquidation. Due to this, the Managing Director was held personally responsible for the value of the cheque, over £30,000.
A former Director of a company sued the current Directors, after alleging that they had conspired to deny him his correct pension benefits. The Directors personally incurred costs of £36,000 defending the claim.
A driver fell asleep whilst driving for a family-run haulage company as an employee. Two motorists were killed. The court held that the operations manager should have ensured that his driver adhered to the relevant driving regulations. He had also failed to keep in close touch on these matters with his Co-Director. Both Directors therefore incurred substantial defence costs before both were convicted of corporate manslaughter.
Following expansion into America and refinancing in order to do so, a large UK food supply group went into liquidation. The group’s lenders accused the parent’s Directors of negligently providing inaccurate statements of the financial and trading position of several subsidiaries. The bankers sued and the eventual settlement and defence costs came to £7,000,000.
The Financial Conduct Authority (formerly the Financial Services Authority) brought criminal proceedings against the Finance Director and the CEO of a publicly traded software company for a misleading trading statement which was designed to entice others to buy shares in the company. Both were found not guilty of knowing that the statements were misleading, but their large expenditure on defence costs did not prevent them from being found guilty of making the statement recklessly. One was jailed for two years; the other for three and a half.
A Managing Director and several technical managers faced criminal prosecutions for alleged breaches of health and safety legislation, which resulted in the accidental deaths of two employees.
Defence costs: £890,000
As a result of his company allowing dangerous goods to be carried by air, the Civil Aviation Authority interviewed a Director under caution.
Legal representation expenses: £21,000
The acquiring company in a UK acquisition launched proceedings against the principal Directors of the target company, alleging negligent and/or fraudulent misrepresentation of the financial standing of the company. The amount claimed was the entirety of the purchase price.
Loss: Estimates of the defence costs exceed several million pounds.