Mitigate your litigation risk, says Aon

Increasing regulation, economic volatility and ongoing demand for transparency have led to a wave of companies becoming first-time buyers of liability cover or seeking to enhance their existing levels of cover.

In an increasingly litigious society, claims against directors and officers (D&Os) are expected to increase – pushing companies to gear up their D&O liability insurance.

The main areas of concern to companies include regulation, growing rights-awareness among consumers and employees, and shareholder-derivative claims. This is occurring throughout the world, with South Africa no exception.

The amended Companies Act puts D&Os at greater risk with regards to undertakings that may bring about increased levels of legal action.

As Gillian Wolman, account manager at Aon South Africa’s Financial Services Group, says: “Businesses operating in today’s environment are facing increasing pressure for transparency, disclosure, accountability and governance – putting greater responsibility on directors and officers for maintaining compliance with many enactments, corporate codes and best practices. Directors and officers also have to illustrate to various stakeholders that they are running their organisations effectively and profitably.”

She adds that claims are usually made by a third party who has some relationship with or interest in the company, and who alleges that a director or officer has acted wrongfully.

Where these “wrongful acts” result in financial loss to a third party, the third party may litigate against both the company and individuals within the company, which can lead to substantial legal costs as well as civil damages.

Cover has become a necessity to protect the personal interests of directors, officers and other employees in managerial or supervisory positions. In extreme cases, D&Os may even be forced to surrender personal assets due to circumstances out of their control – and may therefore require incomprehensive cover.

“But minds can be put at ease in the knowledge that negligent acts one could be held liable for can be mitigated through a correctly structured insurance policy,” says Wolman.