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Directors & Officers (D&O) insurance explained

What is Directors & Officers insurance?

Directors, managers and employees are all expected to adhere to certain duties and standards in their day to day role at work. These can range from simply acting in the best interests of the organisation, to complying with strict legal and regulatory standards.

If an individual falls short of their obligations they can be held personally liable via civil, criminal or regulatory proceedings.

D&O insurance protects these individuals, covering the costs of defending allegations made against them and reimbursing associated fines and penalties.

It also typically includes certain protection for the organisation itself, as well a range of optional covers.

What is a typical D&O claim?

There is no such thing as a typical D&O claim. Directors and officers face a broad range of exposures, and claims can come from virtually anywhere, including:

  • Customers
  • Shareholders
  • Competitors
  • Suppliers
  • Creditors
  • Employees
  • The organisation itself
  • Regulators
  • Governmental and law enforcement agencies

D&O insurance provides the best safety net against the wide range of risks facing individuals within an organisation.

How does this relate to corporate governance?

In recent years, the role of corporate governance has come under intense scrutiny, with a clear trend towards greater individual accountability. In fact, since the financial crisis in 2008, D&O insurance claims have increased four-fold, largely attributed to intensifying regulation across both the UK and globally.

One example is the latest revision to the health and safety sentencing guidelines, which introduced a greater focus on the actions of individuals, and lowered the thresholds for custodial sentences to be awarded.

This trend of greater individual accountability has made D&O insurance more relevant than ever for today’s businesses.

Who needs D&O cover?

Every organisation can benefit from D&O insurance, regardless of its size or legal status. Every director and officer faces various duties in the performance of their role, and each is vulnerable to potential allegations of wrongful conduct.

Smaller organisations may arguably gain the greatest relative benefit from D&O cover, as they typically have fewer resources to defend allegations or fund potential fines, penalties or awards for damages. Despite this, many small and medium enterprises still fail to appreciate the importance of D&O cover in today’s marketplace.

What about limited liability?

One common misunderstanding is that directors and officers are protected by an organisation’s limited liability status.

While limited liability offers financial protection to an organisation’s shareholders, it bears no relevance to the liabilities attached to directors’ and officers’ day-to-day roles and responsibilities.

Directors’ and officers’ personal assets – such as cash, property and pensions – are therefore all at risk if accused of wrongdoing in the performance of their role, with no limits on their potential liabilities.

What happens in the event of a claim?

D&O insurance protects individuals against alleged ‘wrongful acts’, which are broadly defined. This includes funding defence and investigation costs, and reimbursing fines or penalties when a defence is unsuccessful.

Most modern D&O policies will also extend cover to the organisation itself where it is allowed to fund claims on behalf of its directors and officers.

An important exclusion to be aware of is that, on public policy grounds, policies are unable to reimburse fines issued for criminal offences, such as fraud.

Is it easy to get D&O cover?

It’s very easy to buy D&O insurance. It can easily be bought online and cover can be in place very quickly at moderate cost.

Find out what costs might be involved for your business by getting a quote from us online now.



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