Directors' and officers' insurance, also known as management liability insurance and D&O insurance for short, exists to protect entrepreneurs from the risks associated with running a business. It is available for businesses of any size, whether it’s a small startup or a large organisation.
It’s common for investors interested in a company to make D&O insurance a must-have requirement. This protects directors and officers from allegations of mismanagement. D&O cover provides protection against legal action, fines, penalties, and disqualifications from being a director.
D&O cover provides three-sided protection. One side covers directors personally for fines, penalties and legal expenses. The second reimburses the company for paying on behalf of the directors. And the last covers the company should it itself be named in the lawsuit.
It's a common misconception that personal liability claims are covered under professional indemnity, but this is unlikely. A separate D&O policy is the only way to guarantee personal protection for those with management responsibility in your business.
If your directors or management team have legal or regulatory responsibilities to employees, the public, regulators, investors or other directors, then D&O liability insurance should be considered. It is particularly important for companies who have raised or who are seeking investment from external shareholders. All firms that fall under the Senior Managers Certification Regime (SMCR) have an increased risk in making sure they act appropriately. D&O is even more relevant for these firms as it ensures your employees are covered if they unintentionally run afoul of their regulatory responsibilities.
D&O personal liability claims can cover a whole range of issues, from breaching health and safety laws, allegations of cyber-bullying, to misrepresentations in a pitch deck, or errors in financial reporting.
If you have shareholders that own 15% or more of the company then check for a “major shareholder exclusion” – this effectively excludes any claim brought by a shareholder against the business that owns 15% or more of the company’s shares. And should you have shareholders, business activities or contracts with North American jurisdiction, make sure your jurisdiction allows for worldwide claims. Another thing is to make sure your limit is high enough as many D&O plans have an aggregate limit, meaning another director/officer could use it up should a claim be made – leaving you exposed.
It's key to remember that directors' and officers' insurance only covers claims in connection with how the business is governed - not the business activities it carries out.
You may also need public liability insurance and professional indemnity insurance to protect the company as a whole.
Directors' and officers' insurance is a cover designed to cover the cost of claims made specifically against a business's directors and officers (rather than the company in general, or specific employees in non-management positions).
If your business is set up as a partnership or limited company (i.e. you're not a sole trader) and therefore has directors or key managers (officers), directors' and officers' insurance may cover the cost of compensation claims made against them by shareholders, investors, employees, regulators or third parties.
"Sure. You'd be surprised how far a hug goes with Geordi, or Worf. I'd like to think that I haven't changed those things, sir. Yes, absolutely, I do indeed concur, wholeheartedly! Is it my imagination, or have tempers become a little frayed on the ship lately?"
CEO - The Backsplash
"Sure. You'd be surprised how far a hug goes with Geordi, or Worf. I'd like to think that I haven't changed those things, sir. Yes, absolutely, I do indeed concur, wholeheartedly! Is it my imagination, or have tempers become a little frayed on the ship lately?"
CEO - The Backsplash
"Sure. You'd be surprised how far a hug goes with Geordi, or Worf. I'd like to think that I haven't changed those things, sir. Yes, absolutely, I do indeed concur, wholeheartedly! Is it my imagination, or have tempers become a little frayed on the ship lately?"
CEO - The Backsplash
"Sure. You'd be surprised how far a hug goes with Geordi, or Worf. I'd like to think that I haven't changed those things, sir. Yes, absolutely, I do indeed concur, wholeheartedly! Is it my imagination, or have tempers become a little frayed on the ship lately?"
CEO - The Backsplash
I will obey your orders. I will serve this ship as First Officer. And in an attack against the Enterprise, I will die with this crew.
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