Claims from Shareholders

D&O insurance responds to claims brought against individual directors and officers by shareholders of the company. Claims from shareholders often follow a poorer than expected financial performance of the company.

A ship management company, and all of its Board of Directors in person, received such a claim from its shareholders. This alleged that one or more directors were in breach of their duty to act in the best interests of the company when they failed to ensure that the company had a reasonably comprehensive liability insurance programme in place to protect its assets. The year before two incidents had occurred. An employee had been killed in a car crash whilst on a business trip. Employment liability underwriters had declined to pay the family compensation based on a provision in the policy which required the company to declare certain information at renewal. Due to an oversight, they had failed to do so. Later that same year, fire damage to one of the company’s offices had not been reimbursed due to the insolvency of the insurers.

Both claims had resulted in significant losses on the balance sheet of the ship management company. A sum close to USD 1 million had been paid in total.

The individual director on the Board responsible for “risk management” received a claim in person from the company shareholders. D&O underwriters agreed to consider the claim on the basis that the alleged “wrongful act” required a defence. Shortly before going to trial, the case was settled. D&O underwriters agreed that although the claim could be defended, there was a significant chance the shareholders would be successful in bringing their action. As a result, a settlement was negotiated for two thirds of the claimed amount.