Read the following loss examples to find out how….
Copyright Infringement
A firm used social media to showcase project work that they had completed. They received a letter before claim on behalf of the owner of what were alleged to be copyrighted soundtracks, seeking damages for the unauthorised use of the music. Over £50,000 was sought in damages. The Directors & Officers Liability section of cover has no inner limit on cover, but the claim was made against the entity, cover for which extends to a £100,000 sublimit on defence costs. Legal costs to settlement were over £35,000.
Misfeasance, Unlawful Preference and Breach of Duty
Directors of a company received a letter from solicitors instructed by liquidators claiming misfeasance, unlawful preference and breach of duty. It was alleged directors failed to make provisions for the fact that the cash management strategies might not have been allowable and that movement of funds within the group had deliberately put funds out of the reach of creditors. Although some costs were not able to be recovered under the policy, Legal costs of £250,000were paid.
Breach of Fiduciary Duty and Negligence
A supplier of a firm issued a claim for outstanding fees on cancellation of the contract. The agreement in respect of which these were due had been signed by one director without the knowledge of the remainder of the board. The board held the individual responsible for the amount, in excess of £1,000,000, for breach of fiduciary duty and negligence, having failed to consult with the board or with legal advisors before signing. The claim also triggered the breach of contract defence costs on the Company Insurance section of cover. Claim costs were almost £500,000.
Competitor
A claim was brough against a director of a firm alleging they had deliberately marketed themselves as a company owned by the claimant and traded on the reputation and goodwill of that company. They issued proceedings demanding the court enforce a name change and issue an acknowledgement that the defendant company in no way related to the claimant’s business. Legal defence costs and settlement totalled in excess of £100,000.
Unfair Prejudice
Three minority shareholders threatened legal proceedings against the directors of a firm for Unfair Prejudice under s.994 of Companies Act. The main allegations were that fundraising rounds were not genuinely required and were actually designed to dilute their shareholdings (even though the claimants had full rights to participate in the share issues but chose not to). The allegations were strongly denied but the claimants pushed for the purchase of their shares and for compensation. Despite barrister advice that the claimants’ cases was weak, with little chance of success if it were to proceed to court, the claimants persisted. Costs of the claim were over £300,000.
Breach of Director Duty
A business entered administration and liquidation followed. The liquidator filed a writ against the defendant to recover money on the basis that the defendant breached his duty as director of the company by making a payment to the parent company when it ought to have been known this was unlawful. Costs were over £85,000.
Insolvency
A plaintiff alleged that directors of an insolvent firm negligently overstated the company’s profit and understated creditors. This allegedly false information induced the claimant to extend a line of credit that they argued they would not have done had they known the real position of the company’s finances. Costs of the case exceeded £300,000.
Wrongful Appropriation of Trade Secrets and Tortious Interference
The claimant provided a firm with patent protected services for many years. On cancellation of further orders, it became apparent that the firm was using the technology to produce the services in-house and had hired staff of the claimant to support production. Allegations including wrongful appropriation of the claimant’s trade secrets and tortious interference with trade. Legal defence costs and settlement exceeded £200,000.
The Companies Act 2006 sets out statutory duties that a company director must comply with and would be personally liable for in the event of a breach. Should a breach occur, Directors and Officers (D&O)/Management Liability Insurance would cover legal costs, as well as compensation that would arise from an unsuccessful defence. Cover also provides for the company to be reimbursed for indemnifiable loss that is paid on behalf of a director.
Corporate Legal Liability (CLL), or Entity Insurance, defends claims which are brought against the company.
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Email: hayley.dawson@qualitypi.co.uk
Source: Management Liability Loss Examples 2024 provided by MPR Underwriting Ltd.