Directors & Officers Insurance Guide

What is Directors and Officers Liability Insurance?

Directors and officers (D&O) insurance is a liability protection policy designed to protect corporate directors and officers against potential legal problems arising while carrying out their official duties.

Directors and officers have specific duties, responsibilities and powers relating to their positions. If a director or officer of a company is found to have acted outside of their terms of reference, civil, criminal or regulatory proceedings can be brought against them.

D&O insurance cover provides directors and officers with protection against having to pay for losses relating to any action taken on behalf of the company from their own pocket.

If they are personally sued for alleged or actual wrongdoings due to decisions they took in the workplace, a D&O insurance policy will go towards paying defence costs and damages, such as awards and settlement payments, which could arise.

What does D&O Insurance cover?

D&O insurance covers the cost of compensation claims made against a company’s directors and officers for alleged wrongful acts.

Wrongful acts include:

  • Breach of trust
  • Breach of duty
  • Neglect
  • Error
  • Misleading statements
  • Wrongful trading

Do I need it?

D&O insurance policies offer liability cover for company managers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties. Therefore, D&O insurance has become a regular part of a company’s risk management.

Companies purchase D&O cover because managers can make mistakes. D&O coverage includes financial protection for managers against the consequences of actual or alleged “wrongful acts”. Policies cover the personal liability of company directors but also the reimbursement of the insured company in case it has paid the claim of a third party on behalf of its managers in order to protect them.

While most corporate bodies are protected through public liability and other insurances, the individuals within the company are often unprotected: particularly where they have acted without proper authority or breached any part of the Companies Act, however inadvertently.

If directors and officers do not have insurance, they face a greater risk of not being able to defend themselves against:

  • Disqualification from holding the position of director
  • Civil proceedings which can lead to hefty legal costs and awards for damages
  • Criminal prosecution which can lead to fines and possible imprisonment

What is not covered?

D&O insurance does not cover claims made against the organisation as a whole, only those made against individuals for alleged wrongful acts carried out in their capacity as directors or officers.

Coverage is usually for current, future and past directors and officers of a company and its subsidiaries. D&O insurance grants cover on a claims made basis. This means that claims are only covered if they are made while the policy is in effect or within a contractually agreed extended reporting period.

Coverage does not include fraudulent, criminal or intentional non-compliant acts or cases where directors obtained illegal remuneration, or acted for personal profit.

Is there a general director insurance available in the UK?

D&O insurance policies in the UK all vary according to the insurance provider. To make sure companies buy insurance protection which best suits their needs, most insurance products of this type and complexity are sold through experienced insurance brokers.

How Horizon Management can help

To find out more about D&O insurance and to get help working out which policy is right for you, get in touch for a free, no-obligation chat with one of the insurance experts we work with.

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