Directors' and Officers' insurance (D&O)

Protection for Directors and Officers

If things go wrong in a business, the senior managers, including directors, officers and partners, are at risk of claims being made against them.

Directors’ and Officers’ (D&O) insurance and Management Liability insurance can help protect these individuals against the resulting financial costs, such as fines and legal fees.

Investigations into directors personally. whistleblowing, and the self-reporting regime could all lead to a director needing the assistance of legal counsel to put forward their case. As these are personal claims, a director’s personal assets could be at risk.

D&O insurance is there to pay for costs relating to mounting a defence, and any damages or settlements relating to the matter. Any allegation made by a third party against a director or officer, no matter how frivolous, needs to be vigorously defended, otherwise, there is a risk of judgement being entered in default of a defence. 

Other areas that give rise to claims include:

• Positions on outside boards 
• Wrongful termination, sexual harassment or discrimination 
• Initial public offerings

Directors and officers can be held liable for their own actions and inactions – and the actions of their co-directors.  Directors’ personal liability for the performance of a company is unlimited. If the shareholders want to sue for mismanagement, they can, and do, quite frequently. 
 

What does Directors’ and Officers’ insurance cover?

Directors’ and Officers’ (D&O) Liability insurance gives financial protection in the event you are sued personally. D&O protects you against claims made against you or your co-directors within the scope of your everyday business.

It is there to cover you for legal costs as well as any damages. 

D&O insurance covers directors' acts and the cover should extend to those individuals that are subject to regulatory approvals (such as the Senior Managers regime), the Data Protection Officer, General Counsel, Risk Manager and other senior individuals (including employees in managerial capacities).

Notably, D&O is distinct from a Professional Indemnity policy (which may be referred to as “PI”, Errors & Omissions or “E&O”, or Civil Liability), which is designed principally to protect the company from any claims arising out of professional business (for example, poor advice or service to a client).