Directors & Officers Insurance: Three Things You Need to Know

By Jai Breitnauer

A recent study showed that only 30 percent of British small businesses have D&O insurance (excluding sole traders), yet a quarter of those businesses needed to make a claim on their policy during 2020. Click To Tweet

Congratulations! You’re a company director. You’ve got your certificate of incorporation, your website and your bank account, but have you organised your insurance?

When starting any new business, you will no doubt make sure your tools, storage, data, professional indemnity and public liability are covered.

But Directors and Officers Liability (D&O) Insurance is often overlooked, yet going without it carries considerable risk. 

A recent study showed that only 30 percent of British small businesses have D&O insurance (excluding sole traders), yet a quarter of those businesses needed to make a claim on their policy during 2020. If your businesses didn’t have D&O insurance, you or your company would have had to foot the bill yourself for the claim.

Do you need Directors and Officers Insurance? Find out three surprising reasons you might. 

What is Directors and Officers Insurance in the UK?

As a company director, you are legally required to act not just within the law, but also in good faith. All your decisions should be made in the best interests of the company. If you personally are accused of not acting in the best interests of the company, you may need to find the resources to defend yourself either in a civil or criminal court, and your company may not always be supportive. 

D&O insurance covers the cost of defence for directors and officers for alleged wrongful acts, such as making misleading statements, even if the claim is brought by company shareholders. While the policy might be procured by the company, it only covers individuals. 

Directors and Officers Insurance in the UK covers your costs while you are defending yourself. If you are found to be deliberately at fault, such as by fraud, then subsequent costs won’t be covered, but settlements for mistakes could be. For example, if your co-director decides to retire but accuses you of deliberately misleading them over pension arrangements, your D&O insurance would cover your defence costs and possibly the settlement.

3 Surprising Essentials Directors and Officers Insurance Covers

They say the devil is in the detail, and D&O insurance really comes into its own when a claim is at its most complex. It might be easy, as a single director of an SME for example, to dismiss the need for D&O insurance on the basis that you don’t have any employees, officers or shareholders, and your liability is therefore limited. But the applications for D&O insurance are vast and intricate.

Here are three unusual situations where D&O insurance could be really useful:

Family Feuds

Older D&O policies may not cover a family spat, but newer policies will usually provide cover, even if your business partner is your brother or wife. In the UK, it is common for D&O policies to cover these sorts of defendable claims. 

Policies will also usually extend to a spouse in the event of a director’s death, which protects their formerly shared assets, like their house, should they need to finance defence against a claim. Check with your insurer that this is part of your policy.

Fraud 

If you are accused of fraud, you can use your D&O policy to fight the claim. One recent example of this is the case of Arena Television. The company collapsed with £300m of debt secured against equipment they owned, but the serial numbers listed for the equipment were not valid, bringing into question whether it was a genuine mistake or an attempt to mislead creditors. 

D&O Insurance would cover the cost of their defence until the courts have decided. Remember, even after you have left a company and/or your role as director, you may still be held liable for decisions made while you were there. D&O policies usually cover breaches by past, current and future directors. 

Disqualification

If you have been investigated and face disqualification proceedings, you can use your D&O insurance to fight your disqualification case. 

Disqualifications prevent you from acting as a director or even a manager for up to 15 years, and you can find yourself facing a disqualification hearing even if you personally have not been found to have done anything wrong. Your D&O insurance can help you get the legal support you need to avoid disqualification. 

They say the devil is in the detail, and D&O insurance really comes into its own when a claim is at its most complex. Click To Tweet

Is Directors and Officers Liability Insurance right for me?

Almost all companies, no matter how big or small, need D&O insurance. The range of coverage available is broad, the rate of claim acceptance is high, and the peace of mind it offers really is worthwhile. 

You are probably asking yourself, how much does directors and officers insurance cost in the UK? These policies are surprisingly affordable, particularly as the cost depends on the size of the company and the risk, so the smallest companies can pay very little for a good level of coverage.

The key thing to remember is that the policy will only cover the period in which it is active. You can’t claim on a policy for alleged liability that started before the policy began, so you need to take it out before you incur any risks. 

Do you have questions about Directors and Officers Insurance? 

Our advisors at FinEdge can help and can also provide you with a competitive quote. Click here to arrange a call for answers to all of your questions and to get a quote for Directors and Officers Insurance.