Home Knowledge Court Confirms D&O Cover Available to Directors in Derivative Action

Court Confirms D&O Cover Available to Directors in Derivative Action

“Side A” directors and officers (“D&O”) insurance typically provides cover to directors where a company is unable to indemnify its directors for claims against them, including defence costs. In a recent application before the Courts , however, the shareholders of an Irish banking group argued that the directors (who were defending claims of “oppressive treatment” from those shareholders) should not be entitled to use the resources of those companies to defend themselves. These resources included the D&O insurance arranged by the companies for the benefit of the directors, as well as representation by the companies’ Chief Legal Officer.

The shareholders’ reasoning was that it was an expropriation of the companies’ resources, which were controlled by the directors, for the personal benefit of those directors. Also, as the relevant companies were not involved in the High Court proceedings, it was improper for them to expend costs in defending those proceedings.

The Court decided that it was “necessary or expedient” for those relevant companies to participate in the Court proceedings and, as a result, for the resources of those companies to be used for the directors’ defence. In the Court’s judgment it is clear, however, that the existence of cover under the D&O policy was a significant factor in refusing the reliefs sought by the shareholders, as it would be the D&O insurance (and not the companies) that would be funding the directors’ defence.

This case serves as another example of the importance of D&O insurance and how these products can prove invaluable in the event of corporate disputes.

Contributed by  Kerrie Glynn