Company directors have overlooked Brexit liabilities, Mactavish warns

UK company directors could face liability risks for failing to prepare adequately for Brexit, particularly in the event of a no-deal outcome, according to Mactavish. The insurance governance consultant believes directors have overlooked these potential new liabilities, which could leave them personally exposed to legal actions because of the traditional limitations applied to directors’ and officers’ liability cover.

In recent months, the focus for the insurance sector where Brexit is concerned has been European passporting rights and operational challenges. Mactavish is now highlighting what it considers to be “critical new insurance risks”, including being subject to major scrutiny in the event of a performance dip or interruption following Brexit.

“If preparations compare badly with those of peers, this will give rise to a glut of new D&O actions against board members,” Mactavish warns. “Longer term, the regulatory disruption caused by Brexit will leave large swathes of uncertainty for many years as to the details of new regimes applying on a sector by sector basis. This will exponentially increase the risk of unanticipated regulatory action or censure – a key area of D&O insurance cover.”

The consultancy points out that unless a company’s D&O policy has been specifically reviewed and negotiated, it is unlikely to be reliable because there will likely be far too many exclusions to cover and ‘outs’ for insurers. Policyholders should expect claims to be scrutinised carefully and negotiated aggressively if they spike.

Mactavish CEO Bruce Hepburn says D&O insurance policies are bound up in a "labyrinth of interconnected policy definitions, policy triggers and cost categories" such that some company directors are unclear on what they are actually covered for, and that ongoing Brexit uncertainty only exacerbates the issue.

“This situation is becoming even harder for insurance buyers to manage in recent months because corporate D&O is one of the first areas of the insurance market to show signs of higher premiums and less flexible terms," he explains. "What this means in practice is that once claims come in, it is usually too late to make any changes to policies and directors may not be covered.”

Recent Mactavish research has suggested that as much as 45% of all large/complex insurance claims are disputed.

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