D&O Insurance - Essential Cover

What is D&O insurance?

Directors and Officers play a significant role within businesses to help keep them running smoothly, but we all know, mistakes happen. If a senior individual within the business falls short of their obligations, they can be held personally liable via civil, criminal or regulatory proceedings. Did you know that Directors have unlimited personal liability in lawsuits brought against them and can lose their homes, pensions, savings and any other personal assets as a result of prosecution or damages awarded?  It's commonly thought that any personal assets of Directors and Officers are safe when operating as a limited liability entity, but that’s not the case!

The exposure to decision making individuals within businesses has led to the development of ‘Directors’ and Officers’ insurance, which you might sometimes hear referred to as ‘Management Liability’ insurance. Purchased by the business, it’s designed to cover directors and officers for any disputes that could arise as a result of their managerial decisions and protect them in a personal capacity. The policy:

• Covers Directors against personal lawsuits in civil courts – defence costs and any damages awarded.
• Covers Directors against any personal criminal defence costs (but not any fines or penalties imposed).
• Can be extended to cover Directors, officers and the “entity” for employment disputes.

Increased likelihood of claims

Claims under Directors’ and Officers’ (D&O) policies have increased ten-fold in the past decade, making D&O insurance more relevant than ever. The COVID-19 Pandemic is causing great uncertainty across the world and decision making is having to happen quicker than ever before. Sadly, COVID-19 will likely mean that the number of claims against individuals will increase and some examples could include:

• Furloughing is an untested area in terms of case law, and is likely to prove fertile ground for legal action against Directors, either by employees who feel they have been treated unfairly, or government regulators if the rules were not properly observed.
• An employee asked to return to the workplace could resign, then claim constructive dismissal if they were concerned about safety because social distancing measures have not been properly implemented.
• The Health and Safety Executive could take action if a cluster of Covid-19 cases were traced back to a specific workplace, and they consider that required social distancing measures have not been properly implemented.

We have already seen an increase in the number of companies becoming insolvent and unfortunately, this is likely to continue. Where a company no longer has enough money or assets to pay creditors, the likelihood is that claims will be made against individual Directors to help settle outstanding debts.

Cost-Effective Solution

We have various different insurers that we can approach to provide you with an effective solution for your Directors' and Officers' Insurance Policy but we have pulled together a basic indication of the premiums for certain levels of cover. 

If you are able to confirm a few other bits of information, we are able to give you an indicative price for D&O Insurance based on the turnover of your company and the level of indemnity you wish to take out. The table below will give you an idea about what it could cost your business to provide you with personal protection: