Non-executives offered insurance and a hotline to ward off litigants

NON-EXECUTIVE directors worried about personal liability if their companies hit trouble are to be offered specially tailored insurance policies to protect them from civil lawsuits by aggrieved shareholders and creditors.

The policies, marketed by Lowndes Lambert, the brokers, and AF Beazley, a Lloyd's underwriter, also include a cut-price hotline to obtain legal advice.

Last month non-executive directors of Sound Diffusion became the latest to be sued for compensation after a company collapse.

Richard Bennett, managing director of the professional indemnity division of Lowndes, said the law made no distinction between executive and non-executive directors. He believed cases such as Polly Peck, Guinness and Maxwell had highlighted the duties of non-executive directors.

As part of the package on offer, directors who fall out with the rest of the board or who worry that executive directors may be asking them to do something illegal can call Davies Arnold Cooper, the City lawyers.

If they are unfairly sacked through differences with the rest of the board, legal fees will be paid so that they can sue for compensation.

The Cadbury guidelines on corporate governance recommend that non-executive directors should have an independent source of legal advice.

Clive Boxer of Davies Arnold Cooper said non-executives were vulnerable because they were likely to be worth suing when a company runs into trouble, making them 'the whipping boys of the disappointed investor'.

Non-executives are often wealthy people and may be the only directors with substantial assets left after a corporate collapse.

Lowndes says its policy is the first designed specifically for non-executives and covering all the companies on whose boards they sit. This distinguished it from standard 'directors and officers' policies taken out by companies, the firm said. Such policies could be void if insurers could prove fraud by other directors, according to Mr Bennett.

The new policy, taken out by the non-executive director rather than by the company, is likely to cost between pounds 500 and pounds 1,500 per directorship held.