A Guide to Legal Liability Claims in the Care Sector

Directors & Officers (D&O) and Corporate Legal Liability claims

In the highly regulated care sector, directors, officers, and the business entity itself are exposed to a range of legal and financial challenges. From regulatory investigations to employment disputes, understanding the difference between Directors & Officers (D&O) Liability and Corporate Legal Liability (CLL, also known as ‘entity insurance’) is crucial for ensuring the right protection is in place. This guide outlines common scenarios where each type of cover may respond.

Directors & Officers (D&O) Liability

These claims arise from wrongful acts by directors or officers in managing the company.

1. Regulatory Breach – CQC Enforcement Action

• Scenario: A regulator investigates a care home and finds that management failed to maintain proper health and safety standards, leading to patient harm.

• Claim: The directors are held personally liable for failing in their duty of care and face enforcement action.

• Coverage: Legal defence costs and potential fines (if insurable) under Directors and Officers (D&O) insurance.

2. Mismanagement Leading to Financial Loss

• Scenario: A care home operator expands too aggressively without proper financial planning, leading to insolvency.

• Claim: Creditors sue the directors for wrongful trading and breach of fiduciary duty.

• Coverage: Defence costs and settlements (if applicable) under Directors and Officers (D&O) insurance.

3. Shareholder Action for Misrepresentation

• Scenario: Investors claim that the directors misrepresented the financial health of the business, leading to investment losses.

• Claim: Shareholders litigate against the board for financial misrepresentation.

• Coverage: Legal defence costs and possible compensation under Directors and Officers (D&O) insurance.

4. Allegations of Negligence in Resident Care

• Scenario: A resident’s family sues the directors personally, alleging neglect and systemic failures in care provision.

• Claim: The directors are accused of failing to oversee operations properly.

• Coverage: Defence costs under Directors and Officers (D&O) insurance.

Corporate Legal Liability (CLL) Claims

These involve claims against the business entity itself.

5. Breach of Health & Safety Laws

• Scenario: A fall in a care home leads to a Health and Safety Executive (HSE) investigation.

• Claim: The company is prosecuted for breaching health and safety regulations.

• Coverage: Defence costs and possible fines (where insurable) under the Corporate Legal Liability (CLL) section.

6. Employment Dispute Over Whistleblowing

• Scenario: A care worker reports inadequate patient care, and the company dismisses them.

• Claim: The employee sues for unfair dismissal under whistleblower protection laws.

• Coverage: Legal costs and compensation under Corprate Legal Liability (CLL) or Employment Practices (EPL) section, if included.

Key Takeaways

The care sector presents unique challenges that can expose both individuals in leadership roles and the company itself to significant liability.

Directors and Officers (D&O) insurance covers individual directors and officers for wrongful acts and is designed to protect them from personal financial loss arising from their decisions.

Corporate Legal Liability (CLL) protects the business as a whole.

Ensuring appropriate cover is in place, including extensions like Employment Practices Liability (EPL), can safeguard against the reputational and financial damage that often follows legal action.

If you’d like to discuss any of the topics raised in this blog, please get in touch:

Rachael Brafield

Claims Advisor

T: +44 7561 114 973

E: Rachael.brafield@christieinsurance.com