A guide to Director's and Officer's Insurance (D&O Insurance)

It's all very well being a titan of industry at the top of an organisation. But reaching the top comes with its own set of obstacles and challenges. And when you've climbed the corporate ladder as high as it can go, every decision and consequence ultimately rests on your shoulders. That's where Director's and Officer’s insurance (D&O insurance) comes into play.

Designed to offer personal liability protection to company Directors and Officers, D&O insurance is becoming an increasingly popular policy among today's business leaders. Whose actions, decisions and behaviour can make or break the fortunes of the organisations they govern.

It’s for this reason that more and more astute business Executives are seeking the personal and financial protection that Director’s insurance offers. Ensuring that if a claim is made against them for an alleged 'wrongful act' (while executing the remit of their role) they have comprehensive cover in place to cover any legal costs and any claims that ensue.

Our Director’s and Officer's insurance includes:

• Legal expenses
• Negligence
• Health and safety or manslaughter claims
• Defamation
• Breach of duty or trust
• Wrongful trading
• Cover up to £10million

Why take out D&O insurance?

As a Director or Company officer it's your job to protect the best interests of the business you manage. Including your employees, customers and any shareholders. If you take a decision that for, all good intentions, ultimately has a negative impact on company profits, stock value or reputation, you could be held personally accountable for those losses and depreciation in value. At which point a claim could be made against you personally. For which you, not the company, are financially liable.

It's for this reason that more and more organisations are turning to D&O insurance to protect their Director's & Officer's personal liability. As personal claims singling out named individuals, rather than companies, increase in frequency Director’s liability insurance offers your Directors and company Officers financial protection. Something that can't be undervalued in an age where culpability and the 'blame game' is becoming ever more prevalent and company Directors are increasingly scapegoats in order to 'save' a business.

Director’s liability insurance can step in at such times, protecting personal assets by covering the cost of any legal fees or successful compensation claims. For which the named Director or Officer would otherwise be personally liable.

Is Director’s and Officer’s Insurance really necessary?

Historically, personal claims against company Directors and Officers were far less common, but in today's corporate climate the landscape has shifted. And an increasing number of law suits and personal liability claims are being brought against D&Os in both large multinational corporations and SMEs within the global market, including the United Kingdom.

And it's not just disgruntled employees with a grudge to bear that are the main instigators of personal claims against company Executives. As the main figurehead in an organisation's hierarchy, Directors and Officers can find themselves a target for claims arising from industry regulators, competitors and customers, to their own internal leadership and managerial team. All of which D&O insurance can offer financial assistance and protection against.

While the bulk of D&O claims are filed in America, Europe is now starting to see its own fair share of legal action against company leaders. With a growing trend towards a suing and settlement culture infiltrating the workplace this side of the pond. Something Britain's Directors and Officers would be unwise to ignore. It's for this reason that insurance is becoming more commonplace in business institutions. As a greater number of organisations seek to protect their leadership team, and their personal assets.

Is D&O insurance a get out of jail free card?

No, Director's & Officer's insurance is by no means a 'get out of jail free' card. It’s there for when a genuine grievance arises against a company Officer or Director in the scope of performing his or her official workplace duties. It's for this reason that it falls into the 'liability' insurance category. The policy simply protects the personal financial assets of the accused, while any subsequent reviews or investigations of their alleged conduct are undertaken. Together with covering any legal defence fees in the event the hearing makes it to court.

D&O insurance has no bearing whatsoever on the outcome of an investigation. Nor on the amount of any compensation paid out in the event of an out of court settlement. It merely provides the Director or Officer at the centre of the investigation with financial protection of his or her personal private assets, while the necessary investigations ensue and the process takes its natural cause.

What and who is covered under a D&O policy?

Present, past, and future Executives of companies, and their respective subsidiaries, are automatically covered under the D&O insurance remit. With non-executive directors also being offered protection under some policies. As well as the company itself in specific matters involving security. Naturally, as with any insurance, there are a few exclusions. So it pays to read any Directors & Officer's policy wording carefully before committing to a period of cover.

In the vast majority of cases the insurance is taken out by the company directly and typically regarded as a 'benefit-in-kind' at organisations that offer this level of protection for their Directors and Officers. Example complaints covered by Director’s and Officer’s insurance include allegations of being deliberately misled as part of business negotiations, to a competitor suffering reputational damages as a result of libellous or slanderous statements.

But similarly, it also protects Directors & Officers in situations whereby they unknowingly act in breach of local market restrictions or regulations in foreign territories. Something that's becoming increasingly common in the workplace as more and more UK-based businesses take on contracts and clients in locations worldwide. Where laws, rules and regulations don't necessarily align with those we operate by in Britain.

In cases such as these a Director may inadvertently act outside of compliance owing to limited local market knowledge. But despite the innocent error in judgement may still become embroiled at the centre of a personal liability claim. This type of scenario is just one of many arguments in favour of investing in a Director’s insurance policy to protect your company's people.

Common exclusions of D&O policies

One thing that it's important to bear in mind is that the cover isn't exhaustive. Meaning there are certain actions and behaviours, which won't be protected under the terms of your arranged cover.

You can find these exclusions as part of your policy wording, and the majority of reputable insurers will also make you aware of these from the outset too. While the specifics of these exclusions will vary from policy to policy, and insurer to insurer, there are some common exemptions across the board to be aware of.

For the most part, D&O insurance won't cover any instances of criminal wrongdoing or illegal activity on the part of your Director or Officer. Nor, will the policy offer protection for claims or accusations that arose prior to the insurance start date.

These exclusions typically include (but aren't limited to):

• Criminal acts such as fraud or money laundering
• Damage to property or bodily harm (except corporate manslaughter)
• Deliberate acts of non-compliance
• Any illegal activity
• Pre-existing claims
• Law suits already in effect at the time the policy was taken out

So even those with a Director's & Officer's insurance policy can still find themselves at risk should they breach the terms of their agreement, or indulge in behaviour outside of the remit of the law.

Talk to us about D&O cover for your Directors

Director's and Officer's insurance is a specialised type of liability insurance, with strict conditions that govern who is and isn't covered. If you're thinking about taking insurance for your organisation, talk to one of our specialist advisors to ensure you get the right policy to protect you in times of need.