What is Directors & Officers insurance? D&O insurance explained

As a consequence of our increasingly litigious society, the actions of company directors and officers has been thrust into the spotlight.

While many people believe they have no personal liability as a director or officer of the company they work for, in truth directors, managers and supervisors can face allegations and claims for which they may be personally liable.

Companies are protected by the liabilities insurances they carry, but in many cases the individuals are not; particularly if they have acted without proper authority or if they have breached (even inadvertently) any part of the Companies Act 2006(1).

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

Directors & Officers (D&O) insurance offers liability protection for company managers to protect them from claims made which may arise from the decisions and actions they have taken as part of their role.

While the legal definition of a director(2) is clear, the legal definition of an officer(3) is opaque and allows for claims to be issued against people who are working in a managerial or supervisory position.

As a company owner/director you may be relatively confident that your director’s are aware of their legal responsibilities, but it is arguably more important to ensure that your managers and other senior members of staff, who may occupy supervisory positions, understand the problems that can arise by their actions.

Allegations and claims against directors and officers need to be investigated, which can cost a lot of money and place the personal finances of the individual/s in question at risk. Therefore it is essential that companies provide protection through Directors & Officers (D&O) insurance.

What is covered by D&O insurance?

You may be held personally responsible for your business actions and will have unlimited personal liability. Only shareholders have limited liability.

This important aspect of cover can provide protection against potential claimants such as;

• Creditors
• Employees
• Regulatory bodies (including HSE and HMRC)
• Customers/suppliers.

The core purpose of a D&O insurance is to provide financial protection for managers against the consequences

Directors & Officers liability cover protects your personal assets in the event of a claim of actual or alleged “wrongful acts” when acting within the scope of their managerial duties.

The cover provided under the Caunce O’Hara D&O policy is up to £250,000 and is included as part of the business combined liabilities insurance policy. The policy effectively removes the financial risk faced by directors and officers, giving them protection should an allegation or claim be made against them. Considering that even simple investigations can cost thousands, can you afford to be without the cover?

What are examples of a wrongful act?

Wrongful acts can include; a breach of trust; a breach of duty; neglect; error; a misleading statement or negligent misrepresentation; wrongful trading committed or attempted by a director or officer while acting on behalf of the company.

Why are individuals vulnerable?

• Legal liability is moving away from companies and towards personal liability.
• Employees are more aware of their rights and are increasingly likely to make a claim. This means managers need to be on their guard.

Click here for a quick online Directors & Officers insurance quote

Sources:

• Companies Act 2006(1)
• Companies Act 2006(2)
• Companies Act 2006(3)
• Caunce O’Hara & Co Ltd Combined liability and office insurance policy document

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