Directors' and Officers' Insurance
Shared culpability is how the legal system views the directors and officers of any 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 co-director did, even if you weren't aware of it.
One for all and all for one - or ‘jointly and severally liable’, to use the legal term
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 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.
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 vigorously 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 do, quite frequently.
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