Insurance Insider leads with D&O article

22 Jun 2018

Coverage in the Insurance Insider

Data breaches among key threats for UK D&O: BLM Charlie Thomas 22 June 2018

UK brokers have identified data breaches as a key threat for directors’ and officers’ (D&O) insurers and their clients, according to research from law firm BLM.

In a broker survey carried out last month, 85 percent of respondents said data breaches were the key risk for UK companies and directors and officers, with another 56 percent identifying Brexit and political instability.

Data breaches are likely to have been front of mind since the introduction of General Data Protection Regulation (GDPR) in May and following high-profile breaches at companies including Dixons Carphone Warehouse, Under Armour and MyFitnessPal.

In the survey, another 43 percent of brokers polled also referenced regulatory investigations and prosecutions as a concern for the year ahead. And more broadly, BLM identified a sense of unease around the poor take-up of D&O insurance among small and medium-sized enterprises.

BLM partner Alex Traill told this publication: “In an arena where brokers were still concerned about the lack of D&O insurance amongst SME‎s, we would be very surprised if this regulatory concern did not change the demand for such insurance amongst these insureds in the future.”

The survey also looked at the impact of the UK Supreme Court removing employment tribunal fees, noting that it was widely expected that the number of tribunal claims lodged against employers would more than double over the next 12 months.

When asked what their clients’ responses were to these developments, the brokers told BLM that the majority of clients had no response at all, given the low level of knowledge about the change or the belief that that it did not pose a significant risk.

About 26 percent of brokers noted there had been some concern, but no action taken, and just 13 percent said some practices or insurances had been reviewed as a result of the change.

The change in the costs regime for tribunal claims means the handbrake on bringing employment claims is well and truly off. Whilst this supports employees’ rights to bring legitimate claims without being hindered by cost, it does leave the door wide open for those less scrupulous employees to bring claims without financial restraint even when they have a remote chance of success,” said Traill.

Although fair and reasonable employers which have proper procedures in place will face limited exposure to tribunal claims, companies would be wise to seek employment practices liability cover for the unexpected claims that may be brought.”

He added that given that the nature of these types of disputes inevitably focuses on the personal, blame is likely to be directed at specific individuals within the company. With tribunal claims being complicated as well as time-consuming and costly, the purchase of D&O insurance “would be a worthwhile and prudent investment”.

Finally, BLM looked at the proposed new guidelines for tariffs for gross negligence manslaughter in health and safety offences. Draft guidelines released in March point to prison terms of up to 18 years.

When brokers were asked how aware their clients were of the proposals, only 19 percent said their customers were aware, with another 30 percent saying their clients were not aware at all, and 51 percent being unaware of their clients’ knowledge on the subject.

The uncertainty and/or lack of appreciation regarding the impact of the sentencing guidelines amongst brokers and their insureds is pertinent,” said Traill.

The introduction of custodial sentences even for the lowest form of culpability as well as this new increase in the sentence for gross negligence manslaughter will impact insureds significantly and will undoubtedly lead to more contested claims by insureds as a result.

This is likely to see more claims for advancement of defence costs on D&O policies at an earlier stage with the requirement for defence costs sustained particularly when director disqualification proceedings may be a natural consequence of conviction.”

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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Alexander Traill

Alexander Traill

Partner,
London


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