Keep the great white shark away from your business with Directors and Officers insurance

By Tim Weymouth, Associate Director, ACII, AIoL

As insurance brokers, we often talk about the “what ifs” and the worst that could happen. Tim Weymouth, Client Director at Howden, shares his insight into the importance of Directors and Officers Insurance (D&O) – also known as Management Liability Insurance, and how it responds to claims. 

I fully appreciate that the claims of the few are met by the premiums of the many, and it’s the fortuitous nature of insured losses which allows the concept of insurance to exist while remaining financially viable. But, so often when it comes to the value of insurance policies, clients of mine will look to those policies with lower premiums, as the insurance policies that they could do without.

In fact, the converse is often true; which is something that is common to insurance. For example, one of my clients had an internal (unintentional) swimming pool due to a contractor failing to fit a seal – that cost less than £1 – to a water fountain in their office. this happened on the last day of work being carried out, which caused their entire new office to be flooded. Definitely not the type of water feature that they had envisioned.

During the current cost-of-living crisis, clients are looking for cost savings and will examine   their insurance premium table for the next year, jabbing a finger towards D&O  before  declaring:  “We don’t need this, I don’t know anyone that has had a claim.” Repeatedly over the years, I've had to stress the benefits of this cover and how, like great white sharks, you don’t often see one (a claim on this policy), but if you do get close to one. You’ll find yourself in deep water.

As a brief reminder, D&O covers the people within the business for the decisions that they make. Note how I don’t focus on the words Director or Officer. The policy may have them in its title, but it's everyone within the business that the policy looks to cover (employees, local managers, middle/regional managers right up to the main board). So why is this so important? Well, you might have great controls in place at the board level, but does this remain the case as you move down the chain of command?

Many companies have a brilliant handbook and guidance from the top but it's how this is adhered to in the wider company culture which is key. For example, is a manager creating a toxic environment at a local level where bullying and casual harassment are commonplace? Remember, they control the immediate environment so can make things appear to be in order when area managers and other senior management visit, but what is really going on at the ground level?

Situations don’t just arise on an internal level. I had a client with a franchisee of a well-known fast-food brand. The local manager decided not to reopen the seating area for people with disabilities as they had already cleaned and closed that area.  A customer took legal action against the company for discrimination, and it was the D&O policy which responded. Public Liability insurance will not respond here unless there is an allegation of a physical or mental injury.

In a positive move, some insurers will include a whistle- blowing service within their policy, giving junior staff the opportunity to report inappropriate behaviour at a local level before it manifests itself wider within the branch.

The key takeaway:

Look at your insurance schedule to check you have D&O insurance in place. If you don’t, you could have the best insurance programme but lack the seal needed to keep the great white shark at a safe distance. 

For further information about D&O insurance, listen to our podcast. Fair warning though, that shark does make a guest appearance! Or read more here.