What is D&O insurance and what does it cover?

Directors’ and officers’ insurance is a type of management liability cover. It’s designed to protect the leading figures in a private firm, for example, directors, officers and LLP partners, when claims are made against them personally. It can help defend allegations such as breach of duty of care or defamation, for example.

A business generally takes out this insurance on behalf of its leadership team as part of its risk-management strategy. It’s for limited companies, not charities or non-profit organisations.  

D&O insurance recognises the powers and high-level responsibilities held by leading figures in a business. It acknowledges that these duties bring additional risks, such as regulatory action, civil claims or even criminal proceedings .

This insurance is ultimately designed to limit personal losses for individual directors, helping them to address potential disqualification, awards for damages and fines.
 

D&O insurance helps to cover senior leaders against claims of wrongful acts. For example, it may address risks such as:

• Breach of duty of care
• Breach of trust
• Negligent errors
• Defamation
• Health and safety failure
• Breach of company rules and regulations.  

In such cases it can help with the cost of defending company leaders from such allegations and the cost of legal representation. You can also be reimbursed for losses felt as a result of the claim. 
Depending on the policy, D&O insurance can cover existing directors and officers within your business, and potentially past and future ones. Non-executive directors can also be   covered. D&O cover can apply to a variety of senior managers. For example, your chief executive, chief operating officer and partners.

While D&O insurance can help deal with claims of wrongful acts, the list isn’t exhaustive. 
At Hiscox, we will not cover any claim, loss or investigation: 

• Arising out of any dishonest or fraudulent act by an insured person. This will only apply after a judgment or other final adjudication or an admission that such act did occur
• Arising from any requirement to clean up any pollution
• Arising from any public offering of your securities, other than a failed public offering of your securities
• Following any acquisition, merger or take-over of you 
• Brought by any injured party for bodily injury or property damage (other than in relation to a breach of the Corporate Manslaughter and Homicide Act 2007 or the Health & Safety at Work etc. Act 1974). 

Please refer to the policy documents for the full details of inclusions and exclusions of this cover. Policy documents are available when purchasing online. You can also contact our customer services team for more information.
 

While each case and policy are different, D&O insurance claims commonly follow this process: 

1. A negative event or incident occurs. It’s caused by a company director or officer allegedly failing to fulfil their duties. This could be a reporting error or rule breach, for example. 
2. A group of claimants launch legal or regulatory action against the director. Claimants could be from within the business or outside it. They potentially include shareholders, staff members and regulatory bodies. 
3. The director or company’s legal team alert their insurer of the claim. 
4. The insurer deals with any defense costs, so long as the claim is covered by the D&O policy. 5. If the case goes against the director, their insurer may also cover compensation pay-outs and losses.

Wrongful acts in D&O claims can involve a breach of trust or regulations, or a director failing to complete their duties with care. They could take the form of negligence or a failure to act in the best interests of the wider company. Mistakes, inaccurate statements, health and safety scandals and wrongful trading are potential causes.

Real-world scenarios might include:

• A group of shareholders suggesting directors are responsible for significant financial losses
• Competitors accusing directors of defamation following a critical public statement
• Investigations from the Serious Fraud Office or HM Revenue & Customs.

Without D&O insurance in place, a director or officer might have to cover legal fees and losses from their own pockets. Their reputation could also suffer if they can’t afford to defend themselves against accusations of wrongdoing. That may affect their ability to secure work in the future, which is why this cover can help with certain PR costs.

Disqualification is another potential risk. In the most serious cases, senior leaders could be barred from holding a directorship for up to 15 years. Under the Company Directors Disqualification Act 1986 , directors can be barred for failing to keep track of accounting records, submit tax returns or meet regulatory requirements. D&O insurance can assist with defence costs in these instances.

Disclaimer:

Our FAQ pages provide general information and background around the topic covered. FAQ pages are reviewed and monitored periodically by our insurance experts. But the content is not intended to be read as advice and any material is for general information purposes only. If you would like advice for any content, please seek professional assistance.