Directors & Officers (D&O) Insurance – A Guide
It’s not just companies that get sued. Company directors and officers can also be liable for legal action due to alleged or actual wrongdoing from a decision they took. Whether that’s from employees past and present, customers, competitors, regulators or investors. Directors and officers that are sued face the risk of employment termination, prosecution and even the loss of their personal assets.
Directors & Officers (D&O) Insurance is designed to offer protection for relevant persons while carrying out their duties and responsibilities for a company. It can cover legal defence costs and any resulting damages awarded to the claimant.
A director is someone who manages the company. Whereas, an ‘officer’ can cover many different roles. Anyone who works in a managerial or supervisory role can be classed as an ‘officer’.
What does D&O insurance cover?
D&O insurance policies vary and cover a wide variety of claims, such as:
Claims from shareholders and investors holding directors responsible for loss of earnings
Fraud or other police investigations
Negligence investigations by the Health & Safety Executive (HSE)
Investigations into the misappropriation of tax payments by HMRC
It also covers personal legal representatives in case of insolvency, company bankruptcy or death.
Past, present and future directors are covered by D&O – as long as the policy has been in place. D&O insurance is on a claims-made basis, meaning even if you were covered when the alleged event occurred, if your cover has expired, you won’t be covered.
Common policy exclusions
The type of exclusions will depend on the policy. However, some common exclusions found in D&O insurance policies may include:
Existing claims – a new policy typically won’t cover an ongoing claim. It’s best not to change your policy while dealing with a claim.
Pre-known circumstances – similarly, if you are aware of circumstances that may be the subject of a potential claim, a new policy won’t cover it and you’ll usually need to sign a declaration stating you don’t know of any potential claims.
Catastrophic hazards – policies won’t cover certain ‘catastrophic’ events, where the insurer could not realistically cover the cost of claims. This includes damage resulting from war, acts of terrorism or natural events. This type of exclusion is common in many policies.
Conduct – if claims are made as a result of a person’s fraudulent or criminal conduct (e.g. embezzlement), they will not be covered. Insurers will usually pay defence costs (under the presumption of innocence), but once a guilty verdict has been reached, cover will end.
Major shareholder claims – some policies exclude protection from shareholder claims if the shareholder owns over a certain percentage of the business.
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How much cover do I need?
For smaller businesses, cover generally starts at around £250,000. The amount of cover your business will need depends on the type of business and the kinds of risks your company is more likely to be exposed to.
An experienced insurance broker can help determine how much cover is appropriate for your business. They will look at factors including turnover, company assets, financials, how many directors and officers need cover and any geographical locations the company does business in. The cover is tax-deductible.
Most policies will be subject to an annual indemnity limit of £1 million. Insurers may offer optional extras such as representation at any examinations or possible investigations.
To find out more about Directors & Officers Insurance, speak to Dover Street Insurance Brokers on 0208 057 4130. We offer impartial advice to businesses seeking to manage and mitigate risk. For expert advice and support, speak to our team today.