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Opinion piece by Andrew Fluitsma.
We are excited to announce that each edition of Global Insights will now include an opinion piece from a senior staff member at Honan. Kicking off this new initiative is Andrew Fluitsma, Director Global Corporate Commercial. Andrew comments on the legal battle between Chubb Insurance and former Essendon coach James Hird, shining light on the importance of D&O Insurance.
The world of Directors and Officers (or depending on where you are from ‘Executive Protection Insurance’) is acute, complex and tough. These are parallels we can draw with modern footy, but to think the two could be in a one-on-one contest — one out in the square didn't seem likely to me.
In recent history the Essendon Football Club has been the subject of investigation by various sports doping authorities. Leaders of both the Essendon Football Club and the AFL have been investigated. The AFL is big business, and like all big business, both clubs and the league alike are prudent buyers of Directors and Officers Insurance.
Let's look at it like this.
A business decision maker unwittingly stuffs up. He makes a mistake. He's a good operator, but he just misses the mark on a decision and the shareholders, the stakeholders and the community suffer...yep, he's responsible and he's liable. It's not his intention, but he's done it...it's just a brain fade. It's your gun full forward shanking a set shot from 10 meters out, it's your marquee midfielder turning the ball over in a tight contest on the death knock, it's your key position defender giving away a 50 meter penalty to hand the opposition a certain goal. It's rare, but it happens.
In the business world, it can be catastrophic. You can't plan for it, you can't predict it will happen, it's literally the last thing you think your first round draft pick or rock star executive will ever do…BUT IT DOES happen. In sport, like in business, the true elite make mistakes. In business, unlike sport, we can DEFEND these mistakes by buying D&O Insurance!
James Hird in this instance was the executive, not the footballer, he was the business decision maker and he was investigated by authorities for his alleged misconduct, ASADA found against him and others.In a case like this D&O Insurance is designed to defend if the Insurer is happy no exclusions apply. D&O insurance will settle to the third party to reach an equitable / indemnifiable position, to be fair, to defend and protect the policy buyer if they unwittingly stuffed up!
It is not the case that the policy is in place to fund one’s own litigation, the umpire (in this case ASADA) had made their call. If the policy holder is to appeal, this is a decision made off their own bat, the pure intent of the D&O policy is opposed to this. Funding one’s own litigation was never in the minds of the pioneers of D&O Insurance, or insurance for that matter. Insurance is in place for unforeseeable events, unplanned occurrences we buy it to protect against the unknown. The judge saw it that way and awarded the points to Chubb.
Quite simply: managers can make mistakes. They constantly walk a fine line, making tough and complex decisions. No matter how prudently the managers act and how strong their business acumen is, any manager’s decision can result in losses for the company or a third party, and the directors and officers who made those decisions can be held personally liable for those losses and can be involved in costly litigation.
The company needs to ensure that its directors and officers have the room to make decisions. D&O insurance supports good corporate governance by making the risks of these decisions manageable and transparent. When a claim is made, D&O cover gives the Insured a certain degree of financial security.
Honan Insurance Group Ptd Ltd (“Honan”) ABN 67 005 372 396, AFSL 246749. Honan is not the underwriter for any insurance product that you may decide upon and insurance is issued subject to the terms, conditions and exclusions as set by the particular underwriter.
Please note this information provided is for general advice only and does not factor in the objectives, needs or financial situation of the client. It is important for you to consider these matters and read the Product Disclosure Statement (PDS) and policy before deciding if this product is right for you. You can get a copy of the PDS by calling +61 3 9947 4333
