Is Director responsible for any liability?

[Telson]

Hi,

I am director of my private limited company registered in England and Wales for 5 years. I got public liability and professional indemnity insurance, since I started and all my past work are insured. I haven't had any insurance claim yet and not expecting any nearby future. But I would like to clarify something. I am the only employee and director currently.

Suppose any of my client makes a claim in future against my company, and my insurer is NOT willing to pay(saying that there was a clause XYZ in the insurance document and hence they don't have to pay, imagine like that), would I need to pay by selling my PERSONAL assets?

ie, Is the director of a private limited company is liable to pay any debt for his company if his company insurance is not paying it?

Thanks in advance.

 

[Mr D]

You can be stripped of the protection of the company.

That would mean you could have personal liability.

The insurance protects the company - if the insurance will not pay out the company does.
If the company cannot afford to pay out then it would be insolvent and stuff happens to dissolve the company. It's debts die with it unless you sign any personal guarantees or unless you lose the liability protection of the company.

 

[Telson]

Thank you Mr. D for fast response.

Could you please explain 'You can be stripped of the protection of the company'. I didn't understand it. On what circumstances it can happen?

(I fully understood the remaining, thanks for explaining).

 

[Bob Morgan]

Some clients often attempt to impose their own Agreements/Contracts, rather than follow tried and tested Standard Forms. Should this be the case you will need to make your PI Insurer aware, before engagement.

 

[Mr D]

Thank you Mr. D for fast response.

Could you please explain 'You can be stripped of the protection of the company'. I didn't understand it. On what circumstances it can happen?

(I fully understood the remaining, thanks for explaining).

If you were investigated and found to be at fault.

 

[Frank the Insurance guy]

Whether investigated or not, it does not stop a client making allegations directly at you and holding you personally liable.

In my experience, many of these claims are unfounded, but cause stress and worry to the individuals concerned.

Most issues I have encountered follow the demise of the company, and are covered by Directors & Officers Insurance - a couple of examples:

Company goes into administration
Supplier sues director personally for signing contract a few months before. Supplier makes allegations that the director was aware that the company would close and would not therefore fulfill the contract with the supplier. Supplier had incurred significant costs in preparation for the contract.

Redundancy (not relevant in your case)
Company made redundancies but then went into administration. Employee who was due to receive £8K redundancy then sued director personally, making allegations of sexual harassment in the workplace (Basically blackmail as she said she would drop the claim if he paid her the redundancy she was owed!).

Is the director of a private limited company is liable to pay any debt for his company if his company insurance is not paying it?

I think it depends on what the debt is and who its owed to. If they can demonstrate that the business cannot pay the debt because of your failings as a director, they can come to you directly.

Directors & Officers Insurance would cover you for "Wrongful Acts" in your role and duties as a director. It would not cover you for claims relating to the work performed or services provided by your company (Which would be covered under Public Liability and Professional Indemnity).