A guide to directors and officers insurance
What is directors and officers insurance?
With great power comes even greater responsibility. If, as a director or officer, something does go wrong on your watch, you may find yourself personally liable.
This is where directors and officers insurance – sometimes called management liability insurance or simply D&O insurance for short – can help. It is designed to cover your personal liability for any mistakes or omissions made while a company director.
D&O insurance guide
Who is directors and officers insurance for?
If your directors have legal or regulatory responsibilities to employees, the public, regulators, investors or other directors, then you should consider management liability insurance. It is particularly important for directors of publicly listed companies and those seeking investment. Investors often ask for this insurance so getting it sorted early shows you take your responsibilities seriously.
What are the risks?
Claims can cover numerous issues, whether breaching health and safety laws, misadministration of the company pension or errors in financial reporting – particularly where the individual has acted outside the authority of the company. Even if you've done nothing wrong, the impact of a claim like this can be catastrophic. You'll be personally liable for any fines, compensation and defence costs, not to mention any criminal investigations. So it makes sense to cover your back with directors and officers insurance.
Things you can do
A personal liability claim isn't something anybody wants to face. Which means avoiding a claim in the first place is your best defence. As a director, take time to understand all the laws and regulations that affect you and your business, making sure you're on top of everything. And if you don't personally have the time or expertise to do this, then consult specialist advice – it will be worth it in the long-run.
What to watch out for
It's important to remember that management liability insurance only covers individual directors and officers, not the business itself. You may also need public liability insurance and professional indemnity insurance to protect the company as a whole. Also bear in mind that the legal term 'officer' is broad, with the potential to cover numerous individuals in management or supervisory positions. So have a think about who else may be at risk of a potential claim and have them covered too.