Directors and Officers Insurance
Understanding directors and officers insurance: Complete D&O guide
What is directors and officers insurance?
Operating a business today is increasingly complex and individuals making decisions on behalf of companies can be held personally liable under a number of statute laws. Directors and officers (D&O) insurance, otherwise known as management liability insurance, provides peace of mind you can defend yourself against civil, regulatory, or criminal allegations.
Not everyone appreciates that company directors can be held personally liable whilst undertaking their duties, such as those under the Companies Act 2006. Insurance for directors and officers can provide cover for legal liabilities, regulatory investigations, and claims made against the individuals that take decisions on behalf of the legal entity.
Civil, regulatory and criminal allegations made against an individual director or the board can be very costly and time consuming to defend, even if they're without merit. Directors and officers insurance will provide coverage for legal actions arising from decisions made from their managerial duties, by providing for defense costs, damages and settlements.
As a D&O insurance broker we can access a wide range insurers to identify the most competitive coverage to meet your specific needs. Cover can start from £345 for a £1 million limit for a small private company, but can cost tens of thousands for mid-large corporate D&O (including financial institutions)
What does our corporate D&O expert say?
"Every company should consider cover that protects the management of the business, whether you're a startup, small business, or large corporation. D&O cover can provide valuable and timely access to a legal defence when the individuals need the protection the most. The cover provides a cost-effective risk management solution to guard against allegations made from a wide range parties, whether that be regulators, customers, competitors, suppliers, or employees."
Simon Taylor (Chartered Insurance Broker)
Do you need D&O insurance?
It's important to appreciate that all directors have a personal liability when undertaking their duties. Without D&O cover, directors and officers could be liable for damages, legal fees, and settlements, putting their own assets at risk. Allegations for mismanagement can arise from shareholders, customers, employees, competitors, suppliers, administrators and regulators.
Breach of fiduciary duty
Board members have a fiduciary duty to the stakeholders and if these interests aren't protected, they can find themselves liable.
Neglect
All board members can be held accountable for actions of another director due to a lack of oversight, even though they had no knowledge.
Breach of trust
A liability can occur for breaching a third parties’ trust, when you are in a position of authority and have failed to act responsibly.
Looking for D&O cover? Speak to one of our experts about your needs
Director and officer insurance can start from £345 annually for a £1 million limitWhat does directors and officers insurance cover?
Breach of law / regulation
Shareholder claims
Creditor claims
Corporate manslaughter
Breach of fiduciary duties
Competitor claims
Coverage explained:
Who's covered?
Typically, all directors and officers of a company and its subsidiaries are covered under a D&O policy, whether current, future and past. The definition of Insured Person will also typically extend to employees whilst acting in a managerial capacity. Director's coverage 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's covered?
A policy will pay for your legal defence, such as attorney fees, courts costs, and other expenses. In addition, to covering damages awarded by a court, or insurable fines levied by regulatory bodies. Effectively a D&O policy provides a safety net, protecting the personal assets of the leadership team. Given that individuals potentially face the risk of liability when making decisions on behalf of the business.
How can individual's be held liable?
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 creates a separation between the company, its directors and shareholders for its debts and liabilities. However, if a court finds against an individual or a board for a wrongdoing, or neglect of their duties, they have the powers to make judgements against their own assets.
How does a D&O policy work?
D&O insurance is the main cover provided under management liability policy. It provides a safety net against legal action and regulatory investigations, protecting the assets of the management team and non executive directors. The D&O section covers the individuals for wrongful acts, by providing cover for defence costs, damages, settlements, awards, and insurable fines.
Corporate legal liability provides protection from civil litigation and regulatory investigations made against the entity. Corporate legal liability is similar to D&O, but will defend a claim for compensation made against the entity as opposed to individuals. Breach of contract, copyright infringement and corporate manslaughter can be covered.
Employment practices liability provides protection from claims arising from a range of employment disputes (i.e. unfair dismissal, harassment and discrimination) made against the entity. Dealing with employees can be highly emotive and if internal procedures aren't followed, you can leave yourself open to successful employment tribunal claims. The EPL section can protect the company by defending allegations, paying damages and settlements for an alleged wrongdoing.
Charities should read about trustee liability
How much does D&O cover cost and what impacts our premiums?
Cover can start from £345 annually for a £1 million limit for a small private limited company. For large private businesses and publically listed companies, the premium costs can increase into the tens of thousands depending upon which sector you work and importantly your financial stability. Insurers will assess your risk exposure and calculate your premiums dependent on several factors, including: the industry, financial solvency, revenue, total assets, whether the company has any publicly traded securities, and it’s claims history.
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
Do you have sufficient capital to meet your ongoing financial obligations. Insolvency represents a high risk, with numerous parties potentially seeking to recover losses.
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 directors & officers quotes. Talk to one of our experts about your company needs
What does D&O insurance not cover?
Types of claims:
D&O claims and allegations made against individuals or the company can originate from a number of different interested parties, such as:
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regulators,
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shareholders,
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customers,
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competitors,
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employees,
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administrators, and
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suppliers.
How to apply for cover?
Please complete our digital onboarding process to obtain quotations from our panel insurers. Whenever applying for D&O cover, you should make the application in the name of your parent company, however all answers should be provided as a group, including all subsidary companies.
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 D&O proposal 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).
About Get Indemnity™
We are an FCA regulated broker, which offers a simple and effective service with experienced professionals that provides access to the wholesale market. We work with a wide range of insurers who specialise in financial lines to secure the necessary cover for our clients. All insurers are governed by the Prudential Regulation Authority with have strong financial ratings (A) from AM Best.
Frequently asked questions
How much D&O cover do we need?
The amount of cover 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.
Do startups need D&O cover?
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.
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 coverage will need to be considered seperately.
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.
Do nonprofit directors need cover?
If you operate a non-profit organisation or charity, please refer to trustee indemnity. 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.
Related articles and guides
Learn about what the Financial Ombudsman Service does and how it protects consumers against a range of problems arising from various financial services. The Financial Ombudsman Service acts as independent and impartial organisation in the UK dedicated to resolving disputes between consumers and financial service providers.
The Financial Conduct Authority (FCA) regulates the financial services industry in the UK. Its role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers.