What is directors’ and officers’ insurance?
Directors’ and officers’ insurance, also known as D&O insurance or directors’ liability insurance, is designed to provide financial support for key people within your business if they face allegations of personal wrongdoing.
It works to protect directors, officers, partners and other company leaders in the event they stand accused of a wrongful act, such as:
- Breach of duty of care
- Breach of trust
- Negligent errors
- Health and safety failure
- Causing pollution
- Mismanagement of pension schemes
It’s there to help with the cost of defending company leaders from such allegations and to support with the losses you might experience as a result of such a claim. Directors’ and officers’ insurance can also help with the financial side of investigations, plus the costs you may incur in attempt to mitigate the need for investigations.
Do I need directors’ and officers’ insurance?
You might need directors’ and officers’ insurance if you hold a leadership position within a company, whether your title is partner, director, general manager, officer or something else.
Level of responsibility is a key consideration – if you make the decisions about your company’s protocol or investment, then this type of cover could become relevant if things went wrong.
You may not consider be a central aspect of your role as the director of a small technology firm. However, if a new starter became seriously injured in a workplace accident, your seniority could leave you facing personal charges if the Health and Safety at Work Act 1974 has been breached.
In a similar vein, an employee could opt to sue you as the company director if they claim you mismanaged the administration of their non-defined pension scheme. Even if your name is cleared, an official investigation could impact your reputation – our insurance can help with certain public relations costs.
If you answer to shareholders, then these parties could launch claims against managing directors if they believe your investment decisions lacked due diligence.
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How much directors’ and officers’ insurance do I need?
The amount of insurance you’ll need depends on the nature of your business and your role, as both have an impact on the kinds of risks you’re likely to face.
Company size also matters – holding responsibility for a multi-million-pound organisation could mean potential negligence claims come with higher values attached to them, for instance. Therefore, setting a higher limit of indemnity may be smart if this sounds like you.
We can cover you from £100,000 to £10 million but your policy is personal to you, so we’ll work with you to tailor your directors’ and officers’ liability cover to suit your sector and firm.
What’s included in your cover?
Hiscox directors’ and officers’ insurance can cover you if:
- You face claims by investors or other shareholders, including directors
- You face a compensation claim from an employee injured at work
- You make an error in the administration of a pension or employee benefit scheme and you face investigation from financial regulators
- You make a statement about a competitor that is incorrect and they take action for defamation
- You face claims that you breached your duty of care under the Health and Safety at Work Act 1974 or Corporate Manslaughter and Homicide Act 2007
From health and safety concerns to criminal proceedings, there are many ways things can go wrong for directors and officers. Our insurance supports you with the cost of defending or settling legal actions.
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When should I get directors’ and officers’ insurance?
As soon as your company has individuals with key responsibilities, such as a managing director, it could be time to consider directors’ and officers’ insurance. This is because such people can face personal action which may come at a cost to them and the company they represent.
Sole traders don’t need this type of cover, because under this arrangement there is no distinction between you and your business. Sole traders will often find other covers, such as professional indemnity insurance and legal protection insurance, are sufficient for their needs.
However, directors’ and officers’ insurance could become relevant if you decide to register a limited company. From the point you become registered you could face personal complaints, criminal proceedings or director disqualification.
Directors’ and officers’ liability cover may become relevant as your company grows – when your business is traded on the stock market, shareholders can register qualms of their own.
However, small businesses can benefit too, since complaints that name individual directors may not be covered by other types of business insurance, such as commercial legal protection or professional indemnity insurance.
Directors’ and officers’ insurance: FAQs
Who pays for directors’ and officers’ insurance?
Directors’ and officers’ insurance has become a fundamental aspect of business risk management strategies, so many limited companies pay for the product as a matter of course.
Hiscox insurance can reimburse the company for losses it might incur because of a director’s actions.
The product also supports high-responsibility individuals with personal losses they might incur due to extradition proceedings, property handover demands and personal tax liabilities, so sometimes it is purchased as a private expense. However, it’s worth knowing that directors’ and officers’ insurance is classed as a tax-deductible expense (external link) for companies.
What does directors’ and officers’ insurance not cover?
Things that are not covered by Hiscox directors’ and officers’ insurance include:
- Prior claims, investigations and pre-known circumstances
- Claims resulting from similar circumstances to prior litigation against you
- Deliberate or dishonest acts, such as fraud
- Defined benefit schemes, such as pensions based on years of employment and salaries
- Pollution clean-up costs attributable to the Environmental Protection Act 1990
- Claims from or on behalf of your major shareholder companies, or related parties in the USA
- Bodily injury and property damage.
Takeovers and mergers may also affect your cover, as could changes to subsidiaries. Your policy documentation will expand upon the nature of these rules.
Is management liability the same as directors’ and officers’ insurance?
Yes, with Hiscox, management liability and directors’ and officers’ insurance are two names used for the same type of product.
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