Directors and officers liability insurance

What about Directors’ and officers’ liability insurance?

Directors’ and officers’ liability insurance – also known as D&O insurance – covers the cost of compensation claims made against your business’s directors and key managers (officers) for alleged wrongful acts.
D&O insurance policies offer liability cover for company managers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties
Wrongful acts include:
•    breach of trust
•    breach of duty
•    neglect
•    error
•    misleading statements
•    wrongful trading

Do I need it?

If your company has directors or key managers, directors’ and officers’ liability insurance can cover the cost of compensation claims made against them by shareholders, investors, employees, regulators or third parties

Directors and officers have specific duties, responsibilities and powers relating to their positions. These are usually set out in their job description or terms of reference. If a director or officer of your company is found to have acted outside of their terms of reference, civil, criminal or regulatory proceedings can be brought against them

Directors’ and officers’ liability insurance covers the cost of defending these proceedings, as well as any compensation costs that arise from an unsuccessful defense

If directors and officers do not have insurance, they face a greater risk of not being able to defend themselves against:

• disqualification from holding the position of director
• civil proceedings which can lead to hefty legal costs and awards for damages
• criminal prosecution which can lead to fines and possible imprisonment

What it covers?

Directors’ and officers’ liability covers claims made by:

• regulators, shareholders or investors, e.g., for failure to act in the company’s best interest
• creditors

It also covers claims brought in relation to:
• breach of European legislation
• insolvency

Employment practices liability insurance can be bought as an extension of directors’ and officers’ liability insurance. It covers employee discrimination claims, e.g., for unfair dismissal, harassment, or failure to promote a person

Directors’ and officers’ liability sometimes covers defense costs arising from criminal and regulatory investigations into your company where no actual wrongful act has been alleged against a director. Contact your insurer to find out what your policy covers

What is not covered?

Directors’ and officers’ liability does not cover claims made against your organization as a whole, only those made against individuals for alleged wrongful acts carried out in their capacity as directors or officers

Who is covered?

• Stockholders, investors, creditors, banks
• Supervisory board
• The company itself, employees
• Regulators, state authorities, unions
• Customers, suppliers, competitors

Buying directors’ and officers’ liability insurance

You can buy directors’ and officers’ liability insurance directly from an insurer or from a specialist broker

5 key insurance issues

• Increased corporate governance means more D&O exposures
• D&O insurance covers claims resulting from managerial decisions that have adverse consequences
• D&O insurance is a complex cover requiring attention to what is and isn’t covered
• Common risk scenarios include failure to comply with regulation or laws, reporting errors or misrepresentation. Common exclusions include fraud, intentional non-compliant acts and property damage
• International insurance programs necessary for companies with global subsidiaries and offices