Extension answers new Companies Act exposures, says insurer

Zurich in the UK, working in partnership with City law firm, Davies Arnold Cooper is to issue an extension of coverage for its Directors and Officers (D&O) policy wording.

The move is in response to the new law and procedures now in place under the Companies Act 2006 governing shareholder derivative actions against Directors.

Zurich said changes in law mean that the standard D&O policy approach will not normally allow cover to be triggered early enough to meet potentially substantial defence costs.

Martin Butterworth, partner at Davies Arnold Cooper, commented: ‘The Act creates uncertainty on several fronts: will it increase the likelihood of claims.’

Under the new Act (which came into force on 1 October 2007) a derivative action can now be issued as of right and upon a broad set of grounds: acts or omissions actual, or proposed comprising negligence, default, breach of trust or breach of duty.

“The Act creates uncertainty on several fronts: will it increase the likelihood of claims.

Martin Butterworth, partner at Davies Arnold Cooper

Zurich's extended wording is triggered when Notice is received, which advances the point at which cover is available.

The Act introduces a new duty on Directors requiring them to act in good faith "to promote the success of the Company for the benefit of its members as a whole". This enshrines an entirely new principle of so called "enlightened shareholder value.’

Zurich said it is the first Insurer to respond to these change by providing an extension of coverage to its D&O policy wording as follows:

The cover is yet further extended to provide assistance to the Director in dealing with any company investigation into the subject matter of a possible derivative action. The extended cover operates without the imposition of any sub-limit of indemnity.

Douglas Robare, D&O manager for Zurich Global Corporate UK said: ‘Significant potential costs for opposing an application for permission to bring a derivative action is traditionally not covered under standard D&O policies.’