What is directors and officers insurance?

The truth is that while most corporate bodies are protected through public liability and other insurances, the individuals within the company are often unprotected: particularly where they have acted without proper authority or have breached any part of the Companies Act, however inadvertently.

Is directors and officers insurance necessary?

To answer this question, we need to take a deeper look at the directors and officers insurance definition. Broadly speaking, personal claims or proceedings against directors or officers can arise from any decision made or act carried out in the workplace, however innocuous it may have seemed at the time.

These range from frivolous and occasionally malicious claims made by disgruntled customers who weren't happy about the service they received, all the way through to official investigations. Claims and proceedings where personal liability can be involved also typically include:

• Claims by investors and shareholders who blame directors personally for their losses
• Actions brought by liquidators, where they suspect wrongful trading or incorrect payments to creditors
• Actions brought by HMRC where insolvent trading or misappropriation of tax payments is suspected
• HSE investigations where negligence is suspected
• Police and SFO investigations where fraud is suspected

So, what is D and O insurance? Well, it’s designed to cover you against such claims should they arise.

Do I need directors and officers insurance?

When researching who needs directors and officers insurance, it is important to note that while the legal definition of a director is reasonably clear, the legal definition of an officer is vague enough to allow claims or proceedings to be issued against people in almost any managerial or supervisory position. So while you may be confident that you and all of your company's directors are aware of their legal responsibilities, it is vital to understand that problems can be caused inadvertently by individuals at many levels of an organisation.

What if I’m a sole-trader or self-employed?

If you’re not registered as a limited company, then you may find that sole trader insurance is more than adequate for your needs. Such a policy will include both public liability and professional indemnity insurance for sole trader protection. However, if you’re in any way unsure if this would be the right level of protection for you, call us on 0800 640 6600 to speak to one of our insurance experts.

What does director and officer insurance cover?

There are a wide variety of risk scenarios that directors and officers could potentially face and being aware of these will prove invaluable. Ensuring you have the appropriate level of insurance in place is a worthwhile consideration, as it can act as a safety net.

Let’s take a look at some of the accusations that those holding directors and officers positions may sometimes have to contend with;

• Creditor disputes: If your company should find itself in a position where it is unable to fulfil any financial obligations.
• Errors in reports: Should any operational or financial reports submitted by your firm be misleading or inaccurate in any way, and you find yourself facing a claim.
• Fiduciary duty violations: If you or your fellow directors and officers are accused of alleged breaches of fiduciary responsibilities to the firm and its shareholders.
• Shareholder legal actions: Legal proceedings brought by shareholders against directors or officers, often due to alleged mismanagement or actions that appear to have neglected the company’s best interests.
• Regulatory non-compliance: Claims that arise when there are failures to adhere to industry regulations or legal requirements.
• Corporate negligence leading to death (Corporate Manslaughter): Cases involving fatalities linked to the company’s actions or negligence.

Our directors and officers insurance ensures that in the first instance you have direct access to practical advice from our in-house claims team here at Markel Direct. If you talk to them at the first hint of trouble, they can often help you to defuse the situation; either minimising the risk of a frivolous claim being made, or by helping you to direct claims or proceedings towards the company rather than individual directors or officers.

However, should proceedings still arise, our directors and officers insurance covers a wide range of scenarios: from the legal costs and damages where actionable mistakes have been made, through to arranging and paying for legal representation throughout lengthy and expensive official investigations. We can even arrange legal representation at a Police Station in the unfortunate event of a director or officer's arrest.

In short, the protection given to directors and officers by limited company status is often less valuable than you may think. So if you don't already have D & O insurance, it is well worth talking to us about it. Cover is available from as little as £5 a month - get an online quote now or call us on 0800 640 6600 to speak to one of our D & O insurance experts.

What does D&O insurance not cover?

While it is important to understand what directors’ and officers’ insurance covers, it’s equally as importantly to have a view on what is excluded too. We’ve outlined below what is excluded from our policy;

• Prior claims made under a previous policy: Any claims that were made due to wrongful acts before the new directors’ and officers’ policy begins. This includes claims that are ongoing.
• Uninsurable fines and penalties: There are some severe fines and penalties made by regulatory bodies that are uninsurable by law. This is to ensure that the fine or penalty imposed has the required impact, and therefore directors’ and officers’ insurance cannot cover you for this.
• Intentional fraud and criminal acts: These arise due to intentional fraudulent acts and deliberate criminal actions carried out by directors or officers. Such dishonesty, which includes receiving illegal payments or personal gains, is uninsurable. Your directors’ and officers’ insurance provider will only defend you on the basis that you are innocent until proven guilty by law.
• Insolvency exclusion: This can limit claims should your company become insolvent. This usually applies in the case of start-up businesses who began trading without adequate funding in place, or financially distressed companies.
• Professional service claims: Any claims relating to professional services that are perceived to be poor, or bad advice provided by your directors or officers, is not covered by directors’ and officers’ insurance. Instead, your company should have professional indemnity insurance in place to cover such eventualities.
• Property damage or client injury: Likewise, any claims made by clients or the general public regarding damages to their property or physical selves which occur while on your company’s premises, or by directors or officers in the line of work, are not covered by D&O insurance either. Such claims are covered by public liability insurance instead.

How much directors and officers insurance do I need?

At Markel Direct, we offer directors’ and officers’ insurance from £5 a month for £25,000 worth of directors’ and officers’ insurance *. When it comes to insurance, the cost varies from business to business depending on;

• The size of your business  - your turnover and whether you have any employees
• The level of cover you choose
• The types of projects you work on and the equipment you use.

To get a clearer idea of how much you’ll pay, simply get a quote online.

* Price based on a business consultant requiring £25,000 of directors’ and officers’ insurance.