Directors and Officers Insurance Guide

What is D&O Insurance and how can the cover offer financial protection for your personal assets

Directors and Officers Insurance

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Understand why you need D&O Insurance to protect your management team
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Cover individuals in a managerial capacity that can be held personally liable for their actions
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Directors and officers insurance starts at £345 annually or £28.75 monthly for a £1 million limit
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As an expert D&O insurance broker we can secure cover from a wide range of UK insurers

A guide to directors and officers liability cover from an expert insurance broker

Below we provide an expert guide on arranging directors and officers insurance to protect the individuals that make decisions on behalf of companies.

As a Willis Towers Watson Network insurance broker we work with a wide range of insurers operating in Lloyds of London who can offer cover for civil, regulatory and criminal allegations to protect your personal liability. Speak with one of our experts by calling 0345 625 0711.


What you need to know about directors and officers insurance

D&O insurance cover varies between insurers and can be difficult to understand. Without expert guidance of an insurance broker your business could be found wanting when you need to rely upon the protection.

Below we provide a guide and explain how the cover can offer financial protection against potential liabilities whilst working on behalf of limited companies, limited liability partnerships and charities.


What is directors and officers insurance?

Directors and officers insurance, also known as D&O insurance cover, offers financial protection for individuals against civil, criminal and regulatory proceedings, whilst acting in a managerial capacity on behalf of the company.

Regulation and legislation exists to make individuals responsible for their actions when making decisions on behalf of companies. If these laws did not exist, then mangers could act recklessly in pursuit of profits without any consequence.

D&O insurance will pay legal costs incurred in defending claims and damages arising from any award or settlement against a director or officer. For small to medium companies the cover can also be referred to as management liability insurance.

 

What is directors and officers insurance?


What can directors and officers insurance cover?

A directors and officers insurance policy can cover compensation claims and investigations arising from a variety of sources including customers, competitors, suppliers, contractors, regulators, administrators, creditors, shareholders, and employees.

 

> Civil Insurance Cover

A variety of different parties could seek to claim financial compensation through the courts and name a director of the company.

 

> Regulatory Insurance Cover

There are numerous regulators that operate across many different industries that could hold managers to account.

 

> Criminal Insurance Cover

D&O insurance will typically cover individuals up to the point they have been found guilty of a criminal charge.


What definitions trigger a D&O insurance claim?

The definitions that trigger cover under a D&O insurance policy are very broad. In most cases if the individual was acting on behalf of the company and a third-party has suffered a loss or a regulator is investigating a wrongdoing, the circumstance in most cases will be covered.

 

What is a breach of duty?

Directors have numerous responsibilities, a claim against you for failure to do something that you are legally responsible can mean a breach of duty.

 

What is neglect?

A liability claim for neglect can occur when one individual can be held accountable for another, even though they had no knowledge.

 

What is a misstatement?

You can be held accountable to regulators or third parties for misstatement which occurs when you express a fact that is incorrect.

 

What is a breach of trust?

A liability claim for breaching a third parties’ trust can occur if you have failed to act responsibly of behalf of the company.

 

What is a wrongful act?

Wrongful act is a broad term that describes an action on behalf of the business, which is either illegal, immoral, or unjust.

 

What is an error or omission?

An error or omission is a broad term that describes managers mistakes or a failure to fulfil a legal obligation.


    Do we need directors and officers insurance?

    Every incorporated company and partnership should consider D&O insurance as the business grows. The law generally seeks to protect individuals from personal liability where they have acted in good faith and complied with their responsibilities. However, any director, partner or employee acting in a managerial capacity on behalf of the company that fails to meet their legal obligations can be held personally liable.

    It is prudent to purchase the cover to ensure your personal interests are protected. If you operate a non-profit organisation or a charity, please see trustee liability insurance.


    When do companies typically purchase D&O insurance?

    Many companies will not purchase D&O insurance unless they wish to have the security of the financial protection, until the company has raised some capital, or has appointed a non-executive director to the board.

     

    > Capital Raising

    If you undertake a capital raising, then it is common for your investors and shareholders to request you purchase D&O Insurance.

     

    > Business Growth

    It is common that once businesses reach a certain size, individuals wish to protect their own wealth and assets with insurance in case of an allegation.

     

    > Non-Executive Directors

    It is common prerequisite for non-executive directors to request D&O insurance before they take a board position on the company.


    When can a director or officer be held personally liable?

    Personal liability for directors is commonly misunderstood because when you create a limited company, you create a separate legal entity for your debts and obligations. However, anyone acting in a position of authority on behalf of the company that fails to meet their legal obligations, can be held personally liable. D&O insurance can cover those individuals in leadership roles should an allegation of a wrongdoing occur.

    Insolvency is the largest driver of claims made under D&O insurance policies. Creditors, administrators, shareholders, regulators, suppliers, customers, contractors, and employee are the common source of allegations that need to be defended.


    Can you provide some typical D&O insurance claim triggers?

    D&O insurance can be difficult to understand, therefore we have offered some examples of claims tiggers to assist with understanding how a policy works:

    Breach of law, insolvency, creditor claims, breach of regulation, shareholder allegations, employment practice claims against the individuals, competitor seeking compensation, inaccurate disclosures, reporting errors, decisions exceeding authority, claims made on behalf of the company, or mergers and acquisitions disputes.


    Who is covered under a directors and officers insurance policy?

    Typically, all directors and officers of a company and its subsidiaries are covered, whether current, future, and past. The definition of Insured Person will also typically extend to employees whilst acting in a managerial capacity.

    Additionally, insurance cover is 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.

    Who is covered by directors and officers insurance?


    D&O Liability Insurance FAQs


    How much does management liability insurance cost?

    If your company has a positive net worth (assets are greater than liabilities) and made a profit in your latest reporting period, D&O insurance can start from £345 annually or £28.75 monthly for a £1 million limit.


    What is corporate legal liability insurance?

    Corporate legal liability insurance protects a company from claims made for wrongful acts. This could be anything from a breach of contract to copyright infringement or other intellectual property. The cover is typically offered in conjunction with D&O insurance.


    What level of D&O liability insurance cover do we need?

    The limit of D&O liability insurance you 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 limit of liability. It is also worth considering that defence costs on average amount to 65% of the total cost of D&O insurance claims.

    What level of D&O insurance do you need?


    Can one director be held accountable for the actions on another?

    Directors and officers can be held jointly liable for the actions of others. Therefore, an error on the part of one individual can have financial consequences for the others, even though they had no knowledge of the wrongdoing. 


    How D&O insurance cost is calculated?

    Each insurer will take their own view, but the size of your company and industry will have a direct impact. The most important consideration for insurers is your financial standing and operational history. If the company is profitable with a positive balance sheet, you will more likely obtain favourable insurance cover.


    How is fraudulent, dishonest, or criminal conduct dealt with?

    Typically, an insurer will require a final adjudication from a formal authority (i.e., a court of law) or admission of guilt from the offending individual. As a general rule, the insurer will continue to defend the individual on the basis they are innocent until proven guilty. 


    Do we need D&O insurance if the company provides indemnification?

    As directors, you may have an indemnification agreement in place (most don’t), however have you considered what would happen if: 

    1) the company was unable to fund your defence; 
    2) your interests and the company’s interests were not aligned; or 
    3) you left the company and were held accountable for historic actions?


    Why you should you work with an expert D&O insurance broker?

    The market remains challenging for management liability insurance, working with an expert insurance broker can allow you to identify cover and save thousands of pounds in negotiating coverage on your behalf.


    What are director’s duties and responsibilities?

    Directors’ duties and responsibilities is a broad topic and beyond the scope of this guide, however their general duties can be found under the Companies Act 2006. A detailed guide produced by the ICAEW offers a further insight of director’s duties and responsibilities for private companies.

    What D&O insurance exposure do you have by industry?