Directors and Officers (D&O) Liability Insurance

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What is directors and officers (D&O) insurance?

Directors and officers insurance is a type of cover that provides financial protection to those who are the director or officer of a company. It will cover the cost of claims for compensation made against the insured person if they are found to be negligent or they act outside their job description.

You might think that you don’t need directors and officers insurance because you are a part of a limited company. Your company might have limited liability, but this does not mean you do too. In reality, your liability as a director or officer is basically unlimited.

You can also be sued if you are part of a small business – no business is untouchable, so the size of the business does not matter in the event of a claim. Even if you are a hugely respected and valued member of staff, your company would be unlikely – or unwilling – to foot any large legal costs on your behalf.

The consequences are serious – if you were sued, you could end up bankrupt with the huge legal and compensation bills.

The fact is that while most businesses are protected through public liability and other insurances, the individuals within the company are often unprotected.


Why do you need directors and officers insurance?

A claim against a director or an officer could come about from any action within the workplace and the reasons are infinite.

Being a director or an officer of a company holds responsibilities and exposes you to personal liability for the actions or omissions your employees may make in the performance of their company duties. This could result in receiving hefty fines or even imprisonment.


The importance of personal protection for all officers

Problems can be caused inadvertently by individuals at any level of an organisation, but those at the top of a business are at a higher risk as they have a greater level of responsibility.


Corporate legal liability insurance

No business is immune from mistakes, and as a director or officer you are liable not only for actions that could be considered unlawful, but for inactions too. As part of many D&O insurance policies, you will be offered corporate legal liability insurance as an extension. This protects your business from the financial consequences of actions which could place you in a court of law, and while it is not a legal requirement to have it, it is well worth considering. 

Corporate legal liability insurance will protect your business during a legal dispute by covering costs including:

  • Legal defence and legal fees
  • Settlement fees
  • Investigation costs (such as those imposed by HMRC)

D&O insurance, coronavirus and the furlough scheme

Another aspect of D&O insurance which can be offered as an extension is employment practices liability insurance (EPLI). If you haven’t considered taking out EPLI before, it is well worth thinking about ways in which you need to be protected in the current climate. 

Because of the global Covid-19 pandemic and lockdown, businesses are highly likely to see a spike in claims against unfair dismissal and similar, because of the widespread need for furloughing and redundancies in order to protect the businesses’ future. While the situation continues to unfold and the insurance market formulates its response to coronavirus, you should make sure that you are adequately covered for potentially costly employee disputes. 

If an employee makes a claim of unfair dismissal or believes that their furloughing and/or redundancy have been handled improperly, an EPLI policy will protect your business against solicitors’ fees, the cost of an employment tribunal and any damages awarded to the claimant if they are successful. 

You should speak to your D&O insurance broker about adding EPLI to your policy if you are in any doubt about whether the future of your business will be protected in the event of employee disputes.


D&O insurance coverage checklist

Any standard D&O insurance policy should cover your business for the cost of compensation where any representative of the company is accused of wrongful acts – by shareholders, employees or other third parties. 

These include:

  • Breaches of trust and breaches of duty
  • Professional neglect
  • Errors
  • Wrongful trading 
  • Misleading statements
  • Insolvency
  • Breaches of European legislation

However, D&O insurance does not cover claims made against your entire organisation as a whole. It only covers claims against individuals who are alleged to have acted unlawfully in their capacity as directors or officers of the company.


D&O insurance for private companies

It is a regular misconception that public companies have a greater need for D&O insurance because they have larger numbers of shareholders, whereas private companies are less likely to be impacted by expensive claims of wrongdoing. 

However, the list of parties who could make such claims includes customers, suppliers, regulators and creditors – so it is important for any company, whether public or private, to consider the impact of such claims. Nobody is immune to the significant damage that a wrongdoing claim could cause without the right insurance policy in place.


Speak to a D&O insurance broker

Whether you are looking to take out a D&O insurance policy or to add an extension of EPLI or corporate legal liability insurance, please do not hesitate to contact our friendly team today.

Call 0208 421 7030 or email hello@heathcrawford.co.uk to ensure that your business is protected against the unexpected, through the coronavirus crisis and beyond.