Directors and Officers Insurance

As a director do you need D&O insurance and how to obtain quotes?

 What is directors & officers liability insurance?

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D&O Liability Insurance

What is directors and officers insurance?

Directors' and officers' insurance, also known as D&O insurance, is a liability policy that provides financial protection to the personal assets of individuals in their capacity as a director or officer from civil, criminal and regulatory allegations or wrongful acts. The business insurance will provide cover for legal liabilities, regulatory investigations, and claims made against the individuals that make decisions on behalf of the company.

Director's liability insurance is recommended for every business no matter whether you are a small private company or large public company. A management liability insurance policy provides a safety net against legal actions, protecting the personal assets of the leadership team against compensation claims for financial loss. It's important to understand that individuals acting on behalf of a company or limited liability partnership can be held personally liable when undertaking their fiduciary duties, such as those under the Companies Act 2006.

 

How to obtain a quote for director's liability insurance?

Please complete our digital onboarding process to obtain quotations from our panel insurers. If the business didn't make a profit and have a positive net worth in the last reporting period, you will be required you to complete a proposal form and submit either a monthly cash flow forecast for the next 12 months, or if you are an established business, a copy of your most recent consolidated management accounts (balance sheet and P&L).

As a D&O liability insurance broker we can access a wide range of insurers to meet your needs. Annual premiums can start at £345 for a £1 million limit for a small private company, but can cost tens of thousands for large companies. 

 
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Do you need directors and officers insurance?

It's important to understand that regulation and legislation exist to make individual directors responsible for their actions on behalf of companies. Directors' and officers' insurance is commonly arranged by companies of all sizes and will cover the personal risk that individuals accept when they manage the day to day running of the business, or accepting a position on the board as a non-executive director. If these laws did not exist, then company directors could act recklessly in the pursuit of profits without any consequence. 

A policy can provide protection against claims of breaches of trust, breaches of fiduciary duty, neglect, misrepresentation, misstatements, wrongful acts, and errors or omissions. The cover can therefore reduce the financial risks associated with taking up leadership positions, by offering insurance to safeguard the personal assets of management.

 

Do you also need to consider professional indemnity insurance?

How does management liability insurance work?

Director insurance is typically offered under a management liability insurance policy for small to medium sized businesses. There is typically the opportunity to include cover for corporate legal liability, employment practicies liability, and employee theft cover under the business insurance.

Looking for directors' and officers liability insurance? Speak to one of our experts about your needs

Directors' officers liability insurance can start from £345 annually for a £1 million limit

What does D&O insurance cover?

Directors' and officers' insurance will cover your legal costs, in addition to covering any damages awarded by a court, or insurable fines levied by regulatory bodies. D&O insurance claims can arise from a wide range of different interested parties, such as shareholders, customers, employees, competitors, suppliers, administrators and regulators. 

Anyone that’s makes decisions on behalf of a company can be held accountable under any number of statute laws and regulations. Where individuals have acted in good faith and complied with their responsibilities, they can rely upon the corporate veil. This is a separation when a company is incorporated between the company, and its directors and shareholders for its debts and liabilities. However, if a court finds against an individual or a board for an alleged wrongful act, or neglect of their duties, they have the powers to make judgements against their personal assets.

Claims made against individual directors or the company can originate from a number of different sources, these can include: regulators, shareholders, customers, competitors, employees, administrators, and suppliers. The most common type of directors' and officers' insurance risk occurs from: 1) breach of law or regulation; 2) shareholder claims; 3) corporate manslaughter; 4) creditor claims; 5) breaches of fiduciary duties; 6) competitor claims; and 7) employment claims.

 

Charitable organisations should read about trustee liability insurance

 Company director personal liability - why you need directors' and officers' insurance

How much does directors' and officers' insurance cost?

Directors' and officers' insurance can start from £345 annually for a £1 million limit for a small private company. For larger businesses, the premium costs can increase significantly depending upon which sector you work and importantly your financial stability. Insurers will calculate your insurance premiums on several factors, including: the company’s industry, financial solvency, company's revenue, total assets, whether the company has any publicly traded securities, and the company’s claims history.

 Industry sector

Industry sector

Different industry sectors are more prone to claims. Very high D&O risk sectors include: biotechnology, telecommunications, oil exploration and professional sports clubs.

 Financial stability

Financial stability

Do you have sufficient capital to meet your ongoing financial obligations. Insolvency represents a high risk, with numerous parties potentially seeking to recover losses.

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Trading history

A successful trading history is preferred. However, this is not always the case, and a load factor will be applied to start-up businesses when applying for cover.

Compare director insurance quotes. Talk to one of our experts about your company needs

What does company director & officers liability insurance exclude?

Fraudulent, dishonest or criminal conduct, in addition to gaining an illegal profit, is not insurable under a D&O liability policy. Each policy wording can differ, but it is common that insurers will require a final adjudication from a court of law, or an admission of guilt. As a general rule, the insurer will defend the individual company director on the basis they are innocent until proven guilty. It's worth noting that innocent directors will typically remain fully covered if they are co-defendants, even if the acts of their colleagues were fraudulent or dishonest.

Who is covered under a D&O insurance policy?

Typically, all directors, officers and senior management of a company and its subsidiaries will be covered, whether current, future and past. The definition of Insured Person can vary between insurance products but will typically extend to any employees whilst acting in a managerial capacity. Director's insurance is also typically afforded to any lawful spouse, estate, heirs, if named as co-defendant in circumstances allegations are made against a person who is deceased, insolvent, or bankrupt.

 

What happens if the board fails to act?

Director insurance can protect against negligent failure to prevent, or neglect - which means there is no requirement for knowledge, merely the failure for the individual to act. An error on the part of one director or officer can have financial consequences for the others, even though they had no knowledge of the wrongdoing.

 Example Director Insurance Claimants

How to apply for directors insurance?

We work with a wide range of D&O insurance companies who specialise in financial lines to secure the necessary cover for our clients. All the insurance providers we work are governed by the Prudential Regulation Authority with have strong financial ratings (A) from AM Best and a good record of paying valid claims.

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Frequently asked questions

Do startups need D&O coverage?

Founders of startups will often take risks in order for to be successful, unfortunately this can lead to disputes with regulators, shareholders, customers, competitors, employees, and suppliers. If you raise money, it can be a common request by investors to buy the cover. Shareholders may later seek to claim against the policy for several reasons, including misrepresentation, breaches of fiduciary duty, breaches of law, or maleficence.

If you have not submitted a monthly cash flow forecast for the first 12 months and a pitch deck or business plan, insurers will typically apply an insolvency exclusion. Which removes a significant amount of cover for stakeholder claims if the business has failed.

Should small businesses buy D&O insurance?

Small business are certainly not immune legal disputes. In fact, a lengthy legal battle can do more damage to a small business because they will be highly dependent upon a small number of individuals. Without established legal and HR teams, defending a claim or dealing with a regulator’s investigation can be complicated and time consuming. Arranging cover is not a legal requirement, however a policy can help mitigate the risk of expensive legal fees, court damages, fines and penalties, that you could be held personally liable. A policy can provide valuable access to legal support and specialist services to assist mitigate the damage of any allegation.

Is fiduciary liability the same as D&O?

Although policies will typically provide cover for breaches of fiduciary duty, there will typically be an exclusion that remove any cover for taking up positions on an employee pension scheme. Pension trustee liability insurance will need to be considered seperately.

How does a D&O insurance policy work?

A company may indemnify its directors in respect of legal proceedings under a written agreement, however most companies will not. If there is an agreement in place, there will be circumstances which the company will be unable or permitted to meet its obligations under this agreement. For example, the insolvency of the company or restricted under law.

Directors' and officers' insurance policies have been designed to respond to the different circumstances, offering to either pay on behalf of the director (called Side A); or reimburse the company after it has indemnified the director (called Side B). It is worth noting that most  policies will not maintain a deductible for Side A, however, will maintain a deductible for Side B.

if you are a public company with securities listed on an exchange, cover for security claims will be provided under Side C. This coverage section will pay on behalf of the company claims made for shareholder losses.

 

How do D&O policy limits apply?

The D&O policy limit of liability is shared amongst the directors and officers who will receive the same treatment in the event of a claim. Your policy limits will operate either on an: Aggregate basis, which means the amount insured under the policy is a maximum for the entire policy period, no matter how many claims are made; or Any One Claim basis, which means the amount insured under the policy applies to each and every claim (or importantly a series of claims arising from any single event).

Some insurers will offer reinstatements of limits on an aggregate basis, which means if the limit of liability has been eroded by a claim, the limit of liability will then be reinstated and made available for unrelated D&O insurance claims.

Do nonprofit directors need cover?

If you operate a non-profit organisation or charity, please refer to trustee indemnity insurance. The cover is similar, however some insured person definitions maybe different to ensure that trustees and the appropriate persons which manage the non-profit are protected.

We might consider listing on an exchange in the future, does that matter?

If you are considering issuing a public prospectus to raise capital you will need to separately consider IPO insurance. Talk to one of our D&O experts to find out more.

How much company director insurance do we need?

The amount of company director insurance you decide to purchase will depend on your perception of the exposure and how much you are prepared to spend to mitigate the risk. We recommend you consider more than one option to appreciate the cost to increase your cover limit. It is also worth considering that defence costs on average amount to 65% of the total cost of claims. Please note you should consider your individual circumstances and note the limits above may not be sufficient to cover your defense costs and damages.

Can you provide cover to a residential association?

We can arrange cover to protect the boards of residential associations. Please give us a call to discuss your needs on 0345 625 0711.

Should we buy an office insurance policy?

An office policy can provide a range of property and liability protections that can be tailored to numerous workplaces that do not undertake manual activities. Unexpected events such as damage to your equipment in the event of a fire, flood or theft, can all be covered by a policy designed for your office working.

Can you buy coverage before the company is registered on Companies House?

We can make enquires on your behalf, but we will not be able to obtain any quotations before your business has been registered on Companies House - either as a limited company or as a limited liability partnership.

Are non-executive directors covered?

Non-executive directors can be held liable for their actions in the same way individuals that manage the day to day running of the business. Some people take up positions as non-executives without fully understanding what their responsibilities are. Director's insurance is therefore critical because they could be exposing themselves to costly litigation in the course of their duties.

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