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An Explanation of Directors and Officers Insurance

For Directors and Officers of companies, their positions are of great responsibility. Taking charge of daily operations and ensuring the business runs smoothly, dealing with problems as they arise is one thing but also those in charge could be liable if anything goes wrong.

A business must run legally and as such if it doesn’t then Directors and Officers could find themselves with serious issues if a claim were made against them. This is where Directors and Officers insurance could prove useful, also known as D&O insurance.

Any Director that finds themselves with a legal battle on their hands could run into financial trouble. D&O insurance could help protect against financial losses for a business or an individual should they become subject of a legal claim against them.

Directors and Officers - Director and his apprentice

What is Directors and Officers insurance?

Essentially Directors and Officers insurance is a liability insurance policy that could offer protection for individuals that run businesses. It could cover legal costs as well as any resulting pay out that may need to be made as part of a claim. It is essential for anyone running a business such as Company Directors, senior managers , Club Committees, Trustees and Officers. These people could be at risk from a claim if they commit a wrongful act when carrying out duties for a business/club.

As an individual that represents a Company any liability is typically unlimited and so a significant claim could have an impact on a person’s home or other assets. It could even result in a criminal prosecution and prison for extreme wrongdoings.

Having a D&O insurance policy can bring relief to people in these positions with financial support and legal protection if needed.

The types of claim that could be made are as follows:

  • A health and safety claim
  • Employment claim
  • Manslaughter claim
  • Environmental claim eg pollution
  • Negligence
  • Defamation
  • Breach of duty or trust
  • Claims around the administration of a pension/employee benefit scheme

Why is D&O insurance necessary?

Any Director who could ultimately be held personally responsible for any mistakes in business, could be catastrophic. This type of cover is specifically designed to protect in these circumstances so is arguably essential for any Director in business.

Having insurance in place that gives cover for those that run a business could be literally lifesaving. A claim could be made by anyone that the business comes into contact with Employees, Competitors, Regulators or Customers so without this kind of cover a Director could find they are open to legal action.

What does D&O cover include?

Cover should provide the following:

  • Claims made by shareholders, Director or investors
  • Claims made by creditors
  • Claims relating to breach of European legislation
  • Claims made relating to insolvency

Depending on the insurer it could also be possible to include employment practices liability insurance as part of D&O policies which could then protect against claims made by employees such as unfair dismissal, sexual discrimination etc.

It might also be possible to include protection for claims made from criminal and regulatory investigations.

It is fair to assume that if your business has a board of directors then to protect them it would be wise to invest in this kind of policy.

Who is covered?

For a typical directors and officers insurance policy it would cover past, present and future Directors of a company. It could even include non executive Directors. Whilst the policy typically covers individuals it is generally considered a company expense and so it is paid for by the company rather than any individuals.

Being in the firing line on a daily basis could put extreme pressure on directors at the best of times but if a claim is made it could be even more challenging for them. This kind of cover could be beneficial to them financially and also mean that the business isn’t left high and dry whilst they are needed to deal with any claims.

Directors and officers insurance could be purchased from a broker that could help a business secure the right policy for them and make sure they have the best policy in place.

This entry was posted in Blog.
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