New eco law triggers fears of D&O claims

Directors' and officers' insurers are bracing themselves for a surge in claims arising from new laws relating to the disclosure of environmental damage.

Experts have warned that company directors could see a rise in class actions by shareholders for failure to disclose the impact their businesses have on climate change.

The Companies Act 2006, which will be fully implemented by October 2008, will introduce new statutory responsibilities for directors, including a requirement to disclose to shareholders any environmental liability a company might have.

The US has already begun to see the beginning of class actions against companies in relation to their contribution towards climate change.

Simon Thomas, chief executive of environmental research organisation Trucost, said: "Shareholders have attempted to take big [carbon] emitting companies to court to explain why they have not been transparent about the impact they have on the environment and what impact issues such as carbon emission pricing might have on their business model."

With the introduction of more extensive director duties under the Companies Act, Thomas added that the potential of a similar litigation trend being seen in the UK could increase.

"It is likely that, with the recent opening of a number of law firms in the UK, some lawyers bringing action in the US will be keeping a very close eye, particularly on the public companies, where there has been a significant drop in shareholder value because of negative environmental exposure," he added.

Callum Taylor, D&O underwriting manager at Hiscox UK, said: "When [environmental disclosure] is taken in isolation, it is one area that could see an increase in D&O claims.

"But when taken in the context of the Companies Act where new statutory duties are being placed on directors, then undoubtedly we will see an increase in D&O claims.

"The ability to prove [class actions] will be a lot easier as the duty is now on a statutory footing rather than common law."