One in four directors may have to meet damages, legal costs and fines as well as costs incurred by their own organisations from their own pocket because they don't have the right insurance cover.
Recently, the Institute of Directors released a report which highlighted that 24% of executive and non-executive directors do not have directors’ and officers’ liability (D&O) insurance.
"This is a concerningly high number of people," said Tim Grafton, ICNZ chief Executive. "D&O insurance is of vital importance for directors. Their responsibilities and accountabilities have grown substantially in the last few years and without D&O cover they may find themselves personally responsible for what goes wrong."
D&O insurance covers past, present and future board directors and officers of a company or not-for-profit organisation for any liability they may have stemming from their own or the business’s wrongful actions or decisions. Claims against directors or officers can be made by members of the public, employees, shareholders, creditors and even competitors.
Directors have responsibilities under a wide range of Acts, including the Companies Act, the Commerce Act, the Fair Trading Act and the Health and Safety at Work Act. This may include, among other things, responsibility for the health and safety of their staff, employment issues, regulatory reporting and adherence to laws governing the business’s operations, and governance decisions.
"These obligations apply to all directors including those who are appointed to not-for-profit organisations," he said.
While D&O cover will include fines in most instances, insurance is prohibited from covering fines under the Health and Safety at Work Act. D&O insurance will also not cover directors or officers for criminal, intentionally non-compliant or fraudulent acts.
"We strongly recommend anyone operating as a director investigate their liabilities and take out D&O insurance to cover them," he said.