Directors’ and officers’ insurance
Ensuring you have the right type of insurance to help protect against new and emerging risks can be complex – we help to make it simple.
Directors and officers in every business make hundreds of decisions – each of which has the potential to be scrutinised by employees, clients, shareholders and peers if they believe a decision adversely affects their best interest. The stakes are high – directors and officers risk losing their personal assets if they are ever involved in a legal action for a decision they have made while performing their regular duties.
What is D&O insurance?
Directors’ and officers’ liability insurance – also known as D&O Insurance – is designed to protect senior employees in a company against being personally financially liable for any wrongful acts, which can include:
- Breach of duty
- Breach of trust
- Errors and omissions
- Misleading statements
- Wrongful trading
Unlike liability policies that provide cover for claims arising from property damage or bodily injury, D&O insurance specifically provides cover for a “wrongful act”, such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.
A D&O policy provides cover for defence costs and indemnity cover to the entity listed on the policy declarations, which may include:
- Cover for individual directors and officers
- Reimbursement to the organisation for a contractual obligation to indemnify directors and officers that serve on the board
- Protection for the organisation or entity itself
Regardless of your company’s size, the legal cost to defend a director can be substantial, as are the potential penalties that can be personally incurred. A D&O policy is a key part of a risk management strategy.
Why you need D&O liability insurance?
In order to drive your business to the next level, you need to understand the risks you face and how you can minimise or avoid them altogether. Directors and officers are bound by complex legislation in the UK and allegations of wrongful acts from interested parties like shareholders, investors and regulators are on the rise. Non-exec directors are even feeling the pressure. It is not just the blue-chips who need to consider this type of insurance – managers and directors of SMEs are exposed too.
Ever changing regulation, increased employee awareness of employment rights as well as the rise of shareholder activism means that directors and officers are more frequently at risk, translating to rising claims and escalating settlement costs.
If directors, company officers and senior managers do not act within the law, they could find themselves facing fines and paying compensation for damages that could result in risk to their personal assets.
Ensuring you obtain the right advice about directors’ and officers’ liability insurance for your senior employees means you can help mitigate the risks faced by you and them. The policy can provide legal advice and cover for defence costs as well as any compensation costs that arise from an unsuccessful defence.
Who needs directors’ and officers’ insurance?
Directors and officers, regardless of sector or industry, face wide ranging employment-related exposures. Claims can come from many sources including employees, regulators, shareholders, creditors, clients, etc.
Directors’ and officers’ liability insurance is often a requirement before investors and board members risk their personal assets to serve your company.
If your company operates overseas, you could be exposed to a raft of further legislation including EU directives and US securities laws. If directors make frequent business trips to the USA, adequate D&O coverage must be in place to provide legal representation and extradition protection should they be detained by US authorities.
Public liability and products liability policies do not cover the cost of D&O legal actions. Settling these – even if the director or officer is found innocent – can be costly and bankrupt a company or individual. Many companies choose to purchase D&O Insurance to protect their directors from legal expenses and personal liability exposure not covered by indemnification.