What is Directors and Officers Insurance?
Directors, managers and employees are all subject to various duties and standards in the performance of their roles. 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.
Cover is split in to three main areas:
Directors and officers’ liability
This covers you personally, for defence costs incurred during a claim and awards made against you. For example, the costs associated with defending trading standards, environmental or other regulatory claims against you; claims by individual shareholders (including other directors); defence costs and awards of claims arising from your personal involvement with the administration of any company pension.
Corporate legal liability
This covers your company against defence costs and awards associated with events such as claims by investors, maladministration of a company pension; claims alleging breach of data protection; direct financial loss from employee dishonesty; and the defence costs of health and safety, taxation and other regulatory claims.
Employment practice liability
This covers your company against defence costs and awards of claims arising, for example, from allegations of sexual harassment or wrongful dismissal by employees.
What about limited liability?
Despite popular belief, directors and officers are not protected by a company’s limited liability.
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 at risk if accused of wrongdoing in the performance of their role. There are no limits on their potential liabilities.
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 smaller and medium enterprises still fail to appreciate the importance of D&O cover in today’s marketplace.