Directors and Officers Insurance

Various organisations, groups or individuals may take action against company directors - including shareholders, customers, or regulatory bodies. Directors and Officers Insurance reimburse company directors or officers for their legal defence costs following such events.

With various changes to legislation, directors can become personally liable and/or a directors own personal assets could be at risk if something goes wrong.

Investors in a company will often require the company to have taken out Directors and Officers insurance cover before providing funding.

New directors who join a company may also insist on sufficient directors' insurance being in place, as they will not want to risk their own personal assets at risk in the event of a claim against the company.

Here are some of the main areas which will be covered by a typical Directors and Officers insurance policy.

• Often covers Employment Practices Liability, which constitutes a large proportion of claims on such policies. This covers harassment and discrimination claims.
• Legislative breaches - e.g. Companies Act, Health & Safety Act, Data Protection Act, Insolvency Act, and hundreds of others.
• Abusing powers, or acting contrary to the company's Memorandum Articles of Association
• Alleged financial mismanagement of the company.
• Disputes arising from mergers and acquisition activity.
• Action arising from potentially libelous or slanderous statements made by directors.

Possible claimants might include:

• Shareholders
• Employees
• Creditors
• Auditors
• Customers
• Suppliers
• Regulators

1. The Health & Safety Executive (HSE) launched a public enquiry following the death of a staff member while installing cabling on an office building. A company director was compelled to give evidence at the hearing. The legal costs of representing the director would be met by the company's D&O insurance policy.

2. A venture capitalist firm have made an investment in your company. Several months after the deal was finalised, the VC firm alleges that the financial information provided to them prior to the investment was misleading and inaccurate. They make a claim against the financial director of your company. This type of claim would typically be met by a D&O insurance policy.

3. An employee accuses a director of harassment and discrimination. This is one of the most common types of claims to be covered by Directors & Officers insurance policies.

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