As a company director in today's world, you have a unique opportunity to make a positive impact and drive success for your business. It's more important than ever to stay ahead of the curve and ensure that you're protected from potential legal challenges.
That's why Directors' and Officers' (D&O) Insurance is an essential tool for any modern company director. With D&O Insurance, you can rest assured that you're protected in case of a legal claim is brought against you in court.
In this article, we'll provide you with all the information you need to know about D&O Insurance. Plus, how it can help you confidently navigate the challenges and opportunities of being a director.
What is Directors’ and Officers’ Insurance?
A company takes out D&O Insurance to cover its directors if a claim is brought against it in relation to performing their role as a director.
Although there is no statutory requirement to have D&O Insurance, section 23 of the Companies Act 2006 states:
“Provision of Insurance: Section 232(2) (voidness of provisions for indemnifying directors) does not prevent a company from purchasing and maintaining for a director of the company, or of an associated company, Insurance against any such liability as is mentioned in that subsection”.
What does Directors' and Officers' insurance cover?
The liability covered by D&O Insurance includes negligence, health and safety failures, default, defamation, breach of duty, or breach of trust by the director or officer concerning the company that employs them.
D&O coverage also includes ex-directors and officers if a claim is brought against them related to alleged negligence, defamation or breach of duty while working for the company.
Officers covered by D&O Insurance can include company secretaries, in-house lawyers, and senior executives. Furthermore, D&O can cover employees placed temporarily in a management role, the spouses of directors and officers, estates of deceased directors and officers and liquidators.
What is not covered by Directors’ and Officers’ Insurance?
D&O Insurance will not cover serious criminal activity such as fraud, dishonesty, and acts committed deliberately or maliciously. This is because if directors and officers were covered for intentional acts, it could induce them to breach the law and/or act immorally flagrantly.
Damage to property or personal injury will not be covered by D&O Insurance. You will need to take out Employee Liability Insurance and Public Liability Insurance to ensure you’re covered for any claims relating to persons or property.
Do I need Directors’ and Officers’ Insurance?
The board members of large companies who face the greatest risk and hence need adequate risk protection will require D&O Insurance. However, as more and more claims are being brought against the directors and officers of small businesses, the greater the need for D&O Insurance has become across all types of organisations.
So, although there is no statutory requirement to have D&O Insurance, not having this type of cover leaves officers and directors exposed to potentially costly legal claims.
Is Professional Indemnity Insurance the same as Directors’ and Officers’ Insurance?
No, as PII Insurance covers errors and omissions related to the business you’re in.
For example, if you’re an architect and your advice led to severe defects in a particular building, PII would cover you. D&O Insurance, on the other hand, protects you if a claim is brought against you for a management decision, for example, not employing a supervisor to check a junior architect’s work.
It’s important to note that many claims will engage PII and D&O Insurance; therefore, taking out both types of policies is important.
Can a sole trader have Directors’ and Officers’ Insurance?
Sole traders do not need D&O Insurance; however, if you have employees, you will need Employers’ Liability Insurance.
It’s also important to consider whether or not you require Personal Indemnity Insurance, Business Interruption Insurance, and Public Liability Insurance.
Do nonprofits need Directors' and Officers' Insurance?
As nonprofits face the same risks as a director or officer of a commercial company they require the same protection. This is on top of operating in a strict statutory and regulatory environment, for example, following the Charities Act 2011 and the Charity Commission regulations. This makes having such protection as D&O Insurance essential.
Outside of directors and officers, it’s also important to understand the role of charity trustees and their responsibilities.
Get legal assistance from LawBite
Directors' and Officers' Insurance is a valuable protection for anyone serving in a leadership role in a company. It offers protection against potential legal claims, providing the funds necessary to defend against allegations of negligence or breach of fiduciary duty.
LawBite has helped 1000s of startups and small businesses grow and succeed. Our lawyers are here to help you navigate the complex world of business insurance and can advise you on how to keep your business protected. To find out how we can support you, book a free 15 minute consultation or call us on 020 3808 8314.