Insurance for Directors and Officers of companies
Shared culpability is how the legal system views directors and officers of an organisation - even non-executive directors can be held liable for the actions of other directors. Which means you could end up fighting a court battle over something your colleague did, even if you didn’t know they were doing it.
The last few years have seen a rise in claims on directors’ and officers’ policies, due to more stringent governance guidelines and increased oversight by regulators.
There are plenty of insurers willing to take on this risk: the challenge is choosing the right one.
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 from 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 claims breakdown
According to claims figures from a leading D&O insurer, you need to worry about:
4 in 10 D&O claims relate to regulatory governance
Clients / competitors
3 in 10 claims arise from clients or competitors
2 in 10 claims come from disgruntled employees
What does good D&O insurance look like? What to look out for:
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 rigorously defended: otherwise, there is a risk of judgement being entered in default of a defence.
- Entity cover for employment practices liability claims
- Official investigations
- Crisis management
- Entity cover for securities claims (for listed companies)
- Retired directors
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 quite frequently do.