Do you Need Directors and Officers Insurance?

Do you Need Directors and Officers Insurance?

As the leaders of your organisation, your company’s director(s), manager(s), supervisor(s) and board member(s) could be held personally liable and may find that they need additional protection. In a role which faces increased scrutiny, and vulnerability when things go wrong, it is important to have support in place should these members of your team face claims, or allegations, from the actions they have taken as part of their job.

People in these roles are likely to have responsibilities which pose a higher risk for claims by stakeholders, shareholders, trading standard or regulatory bodies. Should an allegation or claim arise, directors and officers personal finances are at risk. Even if the case doesn’t go to court, the allegation will still need to be investigated and this can incur significant costs. By purchasing directors and officers insurance this can help cover legal costs which arise during a claim.

Why do I need Directors and Officers Insurance?

The basis of directors and officers insurance, also known as D&O insurance, is to provide financial protection for senior members of staff who face allegations of ‘Wrongful Acts’.

‘Wrongful Acts’ can include a breach of trust of duty, neglect, error, misleading statements or wrongful trading which is carried out by a senior member of staff acting on behalf of your company. ‘Wrongful Acts’ can include both actual or alleged acts committed.

Directors and officers insurance can offer liability cover for any allegations surrounding ‘Wrongful Acts’ which includes defence cost and any financial losses which in some cases can amount to hundreds of thousands of pounds.

This policy can include all active senior members of the company, as well as any previous and future ones, to protect them against any claims that arise from projects that were completed during their term of employment at your company.

What can go wrong if I don’t have Directors and Officers Insurance?

If you do not have directors and officers insurance, your directors and officers will find themselves personally liable against any claims and potentially unable to defend themselves.

Having D&O insurance in place can reassure your staff that if they find themselves in the position that they need to defend themselves from a claim and the accompanying hefty legal costs, the cover is in place to support them.

Consequences of not being able to defend a claim include being disqualified as a director/officer, criminal prosecution, custodial sentences, bankruptcy, financial hardship and trauma for all parties involved.

What are the most common Directors and Officers Insurance claims?

Examples of directors and officers claims include:

  • Accidents at work
  • Breach of fiduciary duty
  • Defamation
  • Discrimination
  • Fraud
  • Failure to comply
  • Health and safety including corporate manslaughter
  • Misrepresentation
  • Misuse of company assets and funds
  • Negligence
  • Sexual harassment
  • Theft of IP
  • Unfair dismissal
  • Withholding information
  • Wrongful termination

Who usually pays for Directors and Officers Insurance?

In many companies, directors and officers insurance is taken out by the company itself as an act of goodwill to protect the leaders of the company.

However, there is no obligation for the company to do so and individuals can take out a policy themselves to provide financial protection.

What is not covered by Directors and Officers Insurance?

If a stakeholder was to make a claim against your organisation as a whole then this would not be covered by D&O insurance. It is only applicable if the specified individuals on the policy are being accused of ‘Wrongful Acts’ as individuals.

Can I package up my Directors and Officers Insurance with other cover?

Directors and officers insurance can be packaged up with employment practice liability and corporate legal cover to provide a more thorough cover.