Business managers may be leaving themselves at the risk of being under-insured. Lockton offer some valuable advice to mitigate this.
At Lockton, we are acutely aware that it is never our place to tell our clients how to run their businesses or how to spend their money. However, we strive always to act as trusted advisers and remember that it is our primary role to advise clients as to the risks presented and how to mitigate and/or transfer these risks.
Often purchasing an insurance policy is the best solution but then it is our role to ensure that we can design the right programme and negotiate the right deals for our clients.
Personal liabilities An area where we are often engaged in debate with clients is in respect to the personal liabilities which management face in their capacity as directors and ofﬁcers. It may surprise you to know that the liability of an individual director or indeed a manager or supervisor is unlimited if pursued personally for exposures that emanate from their business life. Furthermore a company’s limited liability status does not protect or limit their liability in this regard.
Individuals (directors/ofﬁcers/partners/members) can be pursued for a variety of actions most commonly arising from allegations relevant to:
breach of health & safety policy
We must stress that actions can arise from any allegation no matter how spurious and as employment law is a procedure dominated environment, it is possible for a claim to succeed due to the business falling foul of procedure and believing that they have essentially done nothing wrong.
Despite the relatively low cost of management liability insurances such as directors' and ofﬁcers' liability and employment practices liability, it is staggering how often we speak with clients and management teams where this has not been arranged or indeed thoroughly explained.
Common challenge A common challenge we encounter when we cite claims examples or potential scenarios that could lead to allegations and subsequent litigation is ‘that won’t happen to us’ and then the explanation goes on to reference many years of trading, no history of any disputes, loyal staff who feel part of the ‘business family’ and so on. However, we need to remember that it is a very different world today than in years gone by, litigation is far more commonplace and legal advice and the ability to initiate proceedings are far easier to access.
The statistic which highlights this best is that according to the Department for Communities and Local Government there were 17,152 non-residential ﬁres in the UK for 2013-14 whereas according to statistics published by the Ministry of Justice, the number of employment tribunals for the same period topped 20,000. Bearing this in mind it would be inconceivable for a business to fail to insure their buildings and assets against fire.
However, management teams are frequently omitting to protect themselves against litigation from employment disputes. In an age of ever increasing legal costs and frequency of litigation the risk to a business’s P&L is signiﬁcant. The average award for unfair dismissal and discrimination (various forms) is almost £12,000 and the legal costs which can be signiﬁcant are in addition to this. It is our belief that businesses and individuals are either naive to the exposure or taking unnecessary risk.