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Risk In Context

Directors and Officers Liability in the Technology Industry

Posted by Lydia Alexandra 24 June 2019

In recent times, many Australian companies have been thrust into legal battles resulting from actions by leaders of the company. You only have to look at the highly publicised royal commissions in order to see the scrutiny that directors and officers have endured. As Australian businesses become more regulated and those in senior positions become more accountable for their actions and decisions, Directors and Officers (D&O) Insurance now acts as a de facto “corporate guarantee” providing protection to top leadership talent in a variety of sectors, including Information Technology.

What is Directors and Officers (D&O) Insurance?

As a leader in an organisation, you have many responsibilities and requirements, many of which are mandated by state and federal statutes. For example, regardless of the industry you operate in, organisations must comply with fair work requirements including fair pay, anti-discrimination laws and relevant employment requirements.

As a leader, you’re also obliged to avoid any conflicts of interests as well as avoid any improper use of information. Most importantly, directors and officers are required to act in the best interest of the company.  Any breach of requirements such as these could expose you to personal liabilities, requiring you to pay penalties, legal costs or compensation amounts.

With a range of regulations in place, even the most well intentioned directors and officers could potentially find themselves needing to defend allegations that such requirements have not been fulfilled. D&O insurance aims to provide cover against exposures such as these, protecting your personal assets and allowing leaders to confidently make prompt decisions for the benefit of their business.

Case in Point:

In 2016, an IT company was sued by an ex-employee for unfair dismissal. A manager at the organisation had set up a separate server outside the company system, allowing him to work on his own time. However, by doing so, this gave the manager access to all emails, some of which should have been confidential.

Using the external server, the manager forwarded a confidential email between the Managing Director and HR Manager regarding a company restructure, to a colleague who was made redundant. The redundant colleague lodged a claim for unfair dismissal as a result receiving  this confidential email.  Although unfair dismissal claims are typically covered by Employment Practices Liability policies, if the colleague’s claim were directed at a specific director or officer who made the final decision of redundancy or contributed to the decision of termination, D&O insurance could potentially offer protection to the IT company and the leaders involved in the situation by covering the legal costs.  Alternatively, an Employment Practices Liability policy, which is specific for employment related cases, or cyber protection could also potentially apply in this situation, depending on the specific allegation.

What do you need to do?

As seen in the example above, it was alleged that some leaders did not comply with relevant employment laws. While the leaders may have been acting with best intentions, because of their positions in the company and the type of decisions they made, they were exposed to costly risks. Without adequate protection, companies may be unable to attract and retain talented leadership and board members with the relevant expertise to deliver the demands of the company. It is recommended that IT businesses and their leaders consider D&O cover, allowing leaders to execute relevant activities with confidence.

For more information on D&O cover or to obtain a quote, please get in contact with our specialised team Marsh. 

 

 

Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) arrange insurance and are not an insurer. Any statements concerning legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as legal advice, for which you should consult your own professional advisors. This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy.  Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage.

LCPA: 19/056

Lydia Alexandra

Principal, VP – Financial and Professional Practice

Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by Jardine Lloyd Thompson Pty Ltd (ABN 69 009 098 864, AFSL 226 827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions.