As 2021 gets underway, we look back on the challenges faced by UK firms over the last year, and the increased potential for litigation as a result.
DO claims

Businesses, directors and management teams were under significant pressure to make critical decisions for colleagues, customers and other stakeholders in addition to complying with moral and legal obligations.

Disruption to businesses, contingency and continuity plans will be under focus for months to come as organisations navigate their way through the aftermath of the pandemic, and beyond. This is the most likely time for reflection on the decisions taken in the eye of the storm causing a wave of management liability claims as the impact of their actions become clearer.

This is borne out by research conducted by Gallagher last month amongst firms dealing with litigation claims1. They are already reporting a 40% year-on-year rise in claim applications compared to the same time 12 months ago, and predict a further surge over the coming spring and summer as people take stock of the situation. These claims are in part attributable to COVID-19 but also reflect an increasing litigious society, an uncertain economy, and could come from a variety of stakeholders and scenarios.

A company’s status as ‘limited’ offers financial protection for the shareholders only. It does not protect the company’s directors from the consequences of their business decisions and activities, which may, under law, result in unlimited personal liability to the extent of their entire financial worth.

Management Liability insurance protects the company as well as its directors and officers against legal liabilities and statutory obligations. It generally includes Directors’ & Officers’ Liability (D&O) insurance which helps protect the personal assets of company directors and officers in the event they are personally sued for actual or alleged wrongful acts in managing a company. Corporate Liability cover which is similar to D&O insurance but defends claims made against the company as opposed to individuals, and Employment Practices Liability which covers businesses against defence costs, and awards of damages arising from employees for issues such alleged discrimination, unfair dismissal and sexual or workplace harassment.

Even in the event there is no wrong-doing found, businesses and their directors can face costly legal bills defending themselves against any type of claim.

Examples of claims types and scenarios include:


Businesses’ own employees are one of the most common sources of a management liability claim (under employment practices liability cover if purchased). If employees feel they have been mistreated during their employment, they can bring their concerns to the management team.

If employees feel that their concerns have not been addressed in a sufficient manner, they may seek legal action as a means of rectifying their grievances.

Example: A company was forced, by market circumstances, to downsize its operations. One of the people made redundant took the company to an employment tribunal claiming that this was an example of the company discriminating against her on the grounds of her being female. The company was required to explain and defend itself. Although the average claim is usually around £7,5002, the cost of an average successful defence is c. £8,500, more than doubling the costs incurred by the business3.

Regulatory authorities

Regulatory authorities exist to monitor how businesses operate. They can be far-reaching and governmental, like the Competition and Markets Authority, or trade specific (such as the Law Society). These bodies help ensure that directors and officers conduct their activities in a fair and lawful manner. Regulatory bodies monitor compliance with a broad range of laws and for directors and officers, the enforcement power held by these bodies presents a significant exposure to D&O claims. If regulators discover that wrongful conduct has occurred, they may pursue legal action against the business and its management team. Any investigation into the trading practices of an entire sector (such as airlines or supermarkets/groceries) can be extremely time consuming and costly, even if there is no allegation of wrongdoing against any specific firm.

Example: A company was prosecuted for making false claims on its website about a product it manufactured. The Advertising Standards Agency referred the case to Trading Standards which prosecuted the company. The claims were found to be misleading as the manufacturer was unable to provide adequate evidence to support them. The company was fined for being in breach of the Advertising Code and had legal fees to pay.


If a competitor believes that they have been unfairly disadvantaged by dishonest or illegal behaviour, they may seek recourse through legal action. Directors and officers can have legal actions brought against them for a range of perceived wrongdoings, including breaches of intellectual property, misappropriation of trade secrets, collusion and anti-competitive activities.

Directors and officers may also be held liable for actions that are perceived as misleading or defamatory, with claimants seeking damages for their perceived losses.

Example: A director of Company A went to work for Company B. Company A alleged trade secret theft against Company B and the director. Emails and access to secret information were cited as evidence that the director had given Company B the secrets of Company A to help it develop its own competitive product. Four years after the charges were brought, the case was dismissed. Defence costs for both parties were significant.


The management team is responsible for monitoring a business’s financial health and its ability to meet debt obligations. If a business becomes insolvent, creditors can examine the decisions of directors and officers to see if they can be held personally responsible. Common allegations by creditors include breach of fiduciary duty, breach of duty of due care, negligence and misconduct. Once appointed, insolvency practitioners can look back at the behaviour of past and present directors for a duration of three years, seeking to allocate blame for the bankruptcy.

Example: A company went into insolvency. The suppliers sued the directors of the insolvent company for continuing to trade even when they knew the company was insolvent and couldn’t meet its obligations and worsened the debt to the creditors. The directors were ordered to contribute to the company’s assets to make good the debt and also had to pay for their own defence costs.


Because they have a financial investment in the business, shareholders will expect that directors and officers are acting with the business’s best interests in mind. The directors are effectively fiduciaries (or servants) of all shareholders interests – and if shareholders are not pleased with the performance, they may attempt to bring a claim, either individually or collectively (as a class action).

Example: A shareholder in a company was persuaded to increase their level of investment in the company to help it to develop and launch a new product on to the market. The product development was beset with problems, ran over budget and the new product ended up getting shelved. The shareholder who increased their investment sued the director concerned for misleading them regarding the investment opportunity.

Changing litigation landscape

Over the last few years, the UK management liability landscape has been altered by increased class actions and changing legal and regulatory environments globally, emphasising the accountability and liability of directors and officers.

COVID-19 is very likely to lead to D&O liability losses, even the most spurious of unfounded claims cost money to defend – and underwriters are, understandably, concerned. This is impacting both premiums and availability of cover.

Advice for businesses seeking management liability insurance

How your renewal will be affected will depend on the businesses’ risk profile, claims record and risk management strategies. Now, more than ever, it’s important to start work early with your Gallagher team. They will advise and help you find a suitable solution in the challenging market.

1. Research conducted by 3Gem, between 1 December and 15 December, among 3,200 respondents including 200 claims management companies.
2. As above
3. British Chamber of Commerce -

This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at 24 December 2020, but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this note nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher.