Supplementary Legal Expenses

Supplementary Legal Expenses Insurance for Directors & Officers

There are Legal Expenses products designed to be offered in conjunction with an existing Directors & Officers Liability insurance policy.  Through a 'difference in conditions' coverage this cover is able to provide legal expenses cover for exposures traditionally excluded by stand alone Directors & Officers policies.

There are many benefits of having a supplementary Legal Expenses Policy for the gaps in a standard Directors and Officers Liability policy that are normally excluded particularly in the area of:

  • Bodily Injury (i.e. occupational/ workplace health & safety legislation)
  • Pollution (i.e. environmental legislation)
  • Insured vs Insured (i.e. disagreements at board level)

 

Organisation vs Insured

“Organisation v. insured' claims are generally excluded by the traditional D&O Policies. A new board of directors may bring an action in the name of the company (derivative action) against a former board member in relation to an alleged failure to act with care and diligence in managing the company.

 

Substantial Shareholder Claims

Traditionally, overlying D&O Policies have a limitation placed on actions brought by shareholders (e.g. shareholders owning >15% of the organisation's shares). A 'substantial shareholder' may make a claim against several directors in respect of the mismanagement of the company. The legal costs to defend such an action would otherwise not be covered without a SLE Policy.

 

Government Agency Inquiries or Investigations

Companies and their employees can be directed to appear at various inquiries or investigations. Entirely innocent parties are frequently compelled to attend an inquiry simply to assist in the evidence gathering process (often at substantial legal costs for which they otherwise have no insurance protection.

An area which receives a great deal of attention is the onerous obligations placed on employers in relation to occupational health and safety exposures. It is not uncommon for companies to be investigated by the relevant State/Territory workcover authority when a worker is injured at the workplace. Companies can incur significant costs in responding to or defending any investigation, inquiry or prosecution.

Examples of such inquiries include:

  • Royal Commission: Ambulance service emergency response call frequency
  • Australian Broadcasting Inquiry: Independence in advertising
  • Australian Securities and Investment Commission: Mortgage industry & secret commissions
  • Australian Securities and Investment Commission: Financial advice and real estate agents
  • Royal Commission into the Building & Construction Industry: Building industry integrity

 

Board Disputes

Internal board disputes are traditionally excluded by a D&O Policy's Insured v. Insured Exclusion. For example, a defamation action is brought by one director against another in respect of alleged defamatory remarks made by the latter director at an industry function concerning the level of board input by the former director.

 

Claim Examples

  • An employee suffers a serious injury and the employer organisation has breached Workplace/Occupational Health & Safety law. An investigation is conducted by the regulatory authority which costs the employer organisation $50,000 + in legal fees to respond to the alleged breach.
  • The State coroner conducts an inquiry into the death of an electrical apprentice who dies from third degree burns after lifting himself into powerlines in a cherry picker. The employer organisation is directed to appear at the inquiry.
  • A theme park is charged as a result of an accident where a riderless jet ski left the water and ploughed into an audience injuring four people. Investigation and defence costs are incurred.
  • A snack food manufacturer incurs significant legal costs following a charge by Workcover in the NSW Industrial Relations Commission in respect of a worker losing an arm after being dragged into the rotating blades of a dough cutting machine.
  • A prominent luxury car dealer is prosecuted following the electrocution and death of an employed panel beater when he tried to fix a faulty spot welder.
  • A disabled employee brings an action against the company under the Disability Discrimination Act 1992 for failing to ensure adequate access to a meeting room which was required to assist the employee to carry out their activities as an employee. The action commencedwhen the employee was demoted to a position which did not require access to a meeting room. 

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