Directors & officers (D&O) insurance is a type of business insurance aimed at protecting the personal assets of directors and officers of a company, in case they make a serious error. According to the NimbleFins D&O insurance guide, directors and officers of a company who breach their duties or commit a wrongful act can be held personally liable, risking their home and savings. D&O insurance protects personal assets in situations such as these. All company directors should be protected by a D&O policy.
What does directors & officers insurance cover?
The types of claims covered by D&O insurance are those alleging that a director or officer made a business decision that was negligent or that they’d committed a wrongful act or breached their duties.
D&O insurance covers claims made by a variety of parties, such as investors, shareholders, employees, regulators and even competitors.
D&O insurance protects individuals and their personal assets. While limited companies are afforded certain protections, the directors and officers can still be held personally liable, and that’s where D&O insurance is needed.
For example, imagine a scenario where a supervisor allowed an environment to flourish in which employees were inadvertently incentivised to lie to customers in order to make sales. Inevitably, the system blew up and customers discovered they were missold products. That lead to bad press for the company and a significant loss of business in the long term. An investor in the company could claim that the supervisor was at fault and sue for the lost profits and harm to the company’s reputation.
D&O insurance typically covers two kinds of costs related to a claim: the costs to legally defend against the claim (e.g. solicitors fees) and settlement payments. However, penalties and fines imposed by regulatory bodies are often not covered by D&O insurance. Also, intentional wrong acts would not be covered by a D&O policy.
Who is covered under directors and officers insurance?
D&O insurance covers directors and officers of a company, as the name suggest. In addition to managers and officers, D&O insurance also can shield supervisors and managers. It can essentially cover anyone with seniority who makes business-impacting decisions.
D&O insurance wouldn’t typically need to protect employees or junior members of a company.
Directors and officers insurance can cover professionals in a nearly any industry, such as recruiting, consulting, manufacturing, technology, finance, and more.
Do you need directors and officers insurance?
Directors, officers, as well as senior managers and supervisors should all think about if they need directors and officers insurance. If they make a serious mistake, their personal assets could be at risk if they’re not protected by a policy.
Policies start from around £350 a year, so the costs are not prohibitive. Especially when you consider the impact a claim could have on one’s personal assets. Without D&O protection, someone’s house and retirement savings could all be on the line.
Usually, the business would arrange and pay for D&O insurance for those who need it. If your company has not done so, this is certainly something to ask for. While D&O insurance is meant to protect individuals, it is usually purchased by the company. It can even be seen as a perk.
In cases where an organisation has not purchased D&O insurance for board members, it is possible to buy individual D&O insurance. In fact, someone who is a director on multiple boards can get a policy that covers all of their positions under one policy.
Small businesses without directors, external investors or shareholders, and not under the remit of a regulatory body, are less likely to need to buy directors and officers insurance for their directors and other senior staff.
However, if you have any uncertainty regarding this, it’s always best to speak with a professional. This can mean talking to a specialist broker or calling up an insurance company directly. After explaining the organisation setup and your position and responsibilities, a broker or insurance company should be able to advise you regarding whether or not you need D&O insurance.
That said, keep in mind that some customer service representatives will be new on the job, possibly with only a few weeks’ training. So if any guidance you receive seems questionable, don’t hesitate to get another opinion elsewhere.