In a brutal sign of what's to come, demand for Directors and Officers insurance by sporting administrators has experienced a marked increase over the past year.

Directors & Officers insurance indemnifies the directors, committee members, trustees, executive officers and other officers of an organisation against 'wrongful acts' committed in their respective capacities within the organisation.

Directors & Officers have personal legal exposure

'Wrongful acts' include breach of trust, breach of duty, neglect, error or omission.

Administrators are aware of the increase in the number of legal actions of this type and wish to protect their officers, many of whom are volunteers, against the risk to which they are personally exposed as a result of serving on a board or committee.

The legal case that has provided the most significant ramifications for directors, officers and committee people in sport is Commonwealth Bank v Friedrich and Ors (1991) ACLC 946.  In this case, the Commonwealth Bank lent the National Safety Council of Australia (NSC) over $100,000,000.

John Friedrich, the only director of NSC who was paid for his services, had given false information.  Mr Eise was chairman of the NSC.  Section 592 of the Corporations Law provides that a director is personally liable for the debts of the organisation if the director knew, or should have known, that the company could not meet its debts as they fell due.

Despite the fact that Mr Eise had no commercial background and did not know how to read financial documents, it was held that a director is expected to be capable of understanding the company's financial affairs.

The Corporations Law applies to all companies, including non-profit companies.  Directors of non-profit companies are required to exercise a reasonable degree of care and diligence.  Thus Mr Eise was found to be personally liable for the $96,000,000 debt.

While it would be unusual for sporting organisations to be dealing in amounts as large as those just outlined, the principals involved are just as relevant to sport as they are to any other commercial organisation.  Insurance protection is strongly recommended.

Insurance companies usually have a minimum premium they require for Directors and Officers policies, irrespective of the financial size or exposure of the insured.  As a result, economies of scale will often be achieved by arranging cover on behalf of a number of affiliated organisations under the one policy.  IEA has arranged numerous Directors and Officers policies covering all affiliated clubs in an organisation.

"...insurance protection is strongly recommended."

Insurance cover outlined in this article is a summary only and does not contain full details of the policy.  Insurance provided is subject to terms, exclusions and conditions contained in the policy wording.

Rod Hughes , National Sport Risk Manager

                                                                      Winter 1999

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