UK: Will Whistleblowing Lead To A Blow In Cover?

Last Updated: 16 June 2016
Article by Mark Sutton and Karen Boto

With the FCA's new rules regarding self-reporting and whistleblowing due to be fully implemented by September 2016, one question at the forefront of insurers' minds is whether this will this lead to a rise in claims.

The rules follow a number of recent banking scandals, such as the attempted manipulation of the Libor rate. They encourage employees to speak up and challenge poor practice or unlawful behaviour within their business. The firms affected by the rules are expected to have in place a strong framework to facilitate whistleblowing by employees, primarily ensuring that all concerns reported are property investigated with no personal repercussions.

The FCA website summarises the new rules. They require relevant firms to:

  1. Appoint a Senior Manager as their whistleblowers' champion
  2. Put in place internal whistleblowing arrangements sufficient to handle all types of disclosure from all types of person
  3. Include text in settlement agreements explaining that workers have a legal right to blow the whistle;
  4. Present a report on whistleblowing to the board at least annually
  5. Inform the FCA if it loses an employment tribunal with a whistleblower
  6. Tell UK-based employees about the FCA and PRA whistleblowing services and
  7. Require its appointed representatives and tied agents to tell their UK-based employees about the FCA's whistleblowing service

Although, presently, the new rules only apply to (most) large banks, building societies and insurance firms, they should act as non-binding guidance for all other businesses regulated by the FCA.

However, despite the new regime expanding the scope of the previous rules and guidance considerably, the impact of the rules may not be as significant as one might expect, as the rules are largely reflecting, and to a certain extent codifying, today's standard practices.

The number of whistleblowing reports being made to the relevant authorities has increased steadily over recent years and whistleblowers have continued to provide crucial intelligence, allowing regulatory action to be taken against many firms and individuals.

So will these new rules really lead to more D&O claims here in the UK? Certainly, in other countries where stricter whistleblowing rules already prevail there has been a marked increase in the number of formal investigations commenced in connection with alleged wrongdoings by companies and/or their senior management. Clearly, if whistleblowing is actively encouraged, this will lead to an increase in reports though it should be borne in mind that in some jurisdictions, such as the United States, there are financial incentives for whistleblowing which may have contributed to the increase.

It is therefore possible that the implementation of the FCA's new rules could lead to an increased exposure for D&O insurers. In what continues to be a soft market, further revisions in cover, afforded to firms operating in the financial services industry and beyond, should not be ruled out.

What are the coverage implications?

The anticipated increase in complaints received from employees may prompt the need for more thorough internal investigations by the management to determine whether a formal report needs to be made to the relevant authorities. The costs of such investigations may not be covered under standard D&O policies on the basis that internal investigations do not typically constitute a "Claim" in relation to which "Loss" is usually recovered. It is usually the case that in order for the policy to cover costs of an investigation, it would need to be an official or formal investigation of some kind. As such, insurers may need to consider whether they wish to indemnify these types of costs.

Whether these types of costs should attract cover is not necessarily a new issue for the London market. However, the implementation of the new rules may require insurers to revisit it once again, especially as clarity is likely to be sought by insureds and brokers.

Of course, one advantage of companies, and their directors and officers, being provided with cover from the outset of a matter means that they should be able to deploy a more robust defence immediately, which may allow them to avoid a more formal investigation being launched and therefore reduce insurers' overall exposure. However, the costs of such investigations can be significant and could easily erode the limits of indemnity available, leaving the individual insureds with deficient cover in the event of an actual claim. Some commentators still believe this is, and always has been, a business expense.

A solution to this could be to sub limit the cover available under an appropriate extension, protecting the main limits.

Insurers may also need to consider how to treat the admissions that will inevitably be made by whistleblowers and/or the company to the relevant authorities in return for more favourable outcomes. Most standard D&O policies will contain a clause prohibiting admissions of liability being made without the prior written consent of insurers. If this is stipulated to be a condition precedent to indemnity this may cause problems for insureds, especially where they are facing time constraints in which to reach an agreement with the authorities, coupled with strict confidentiality requirements. Insurers may be placed under pressure to revisit such clauses given the well documented changes in the regulatory environment in which their insureds operate.

Furthermore, the making of an admission may have additional coverage implications. For example, most conduct exclusions require "final adjudication" before they trigger. However, some D&O policies allow insurers to rely on this exclusion where there has been a written admission of liability. If the policy is not specific as to the form that the admission must take, and by whom it must be made, insurers should analyse whether they can rely on an admission made in correspondence with the authorities.

An admission may also trigger the "deliberate misconduct" exclusion, to the extent it exists in the policy. It is likely that insureds will insist on there being clear and unanimous severability provisions in the policy so that the acts and knowledge of one individual insured cannot be imputed to another.

Lastly, an increase in the levels of cooperation between the company, some employees and the relevant authorities could of course trigger a typical insured v insured exclusion. If this exclusion begins to cause difficulties for insureds, it is likely that a further carve out may be required for this scenario, diluting the application of the exclusion clause even further, assuming it is still present in the policy.

The new sentencing guideline's implications for D&Os

February saw the UK implement the Sentencing Council's landmark "definitive guideline" on the sentencing of defendants convicted of offences relating to health and safety, corporate manslaughter and food safety and hygiene offences, regardless of the date of offence.

In addition to the unprecedented hike in fines, the codification of the sentencing of individuals convicted under the Health & Safety at Work etc. Act 1974 (usually, directors) introduces a custodial sentence even for offences that have the lowest degree of culpability.

Fines now have a "starting point" linked to turnover, adjusted upwards or downwards depending on relevant aggravating and mitigating features, allied to relevant financial information.

The guideline, while providing relative clarity on fines for micro, small and medium-sized businesses with turnovers of less than GBP 50m, creates significant uncertainty for larger businesses by categorising them as having a turnover exceeding GBP 50m. It seems inconceivable that a business with a turnover of GBP 800m could be fined a similar sum to one with a turnover of GBP 50m.

Further, with a "very large" business defined in R v Sellafield Ltd [2014] as one with a turnover of over GBP 1bn, the die is already cast for significant fines for "very large" businesses, even where culpability and harm are both very low.

Defence costs covering health and safety or corporate manslaughter-type offences are commonly included as a standalone insuring clause in commercial D&O policies. The greater the risk of custodial sentencing, the more likely a director is to want to access the D&O policy to retain the best legal representation available, particularly given that director disqualification proceedings could also follow conviction.

The new guidelines may have broader implications, however. The potential for larger fines against the entity for HSE failings could trigger claims by investors against the D&Os where the entity's share price has suffered as a result, or the entity has gone bust.

Will whistleblowing lead to a blow in cover?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Mark Sutton
Karen Boto
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.