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Directors and Officers Insurance Cover - explained ...


This type of insurance is only available to corporate entities as primarily, cover is offered to the directors and officers of a corporation who may become personally liable following actions taken by them. The cover protects the Directors and Officers of a company in the event that they are accused of being engaged in wrongful or misleading acts. The policy can also be extended to protect the company in the event of claims made against it by Employee’s for example, unfair dismissal or similar employment disputes.

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.

Some Directors believe that they can hide behind a Limited Company if something goes wrong, unfortunately, this is not the case. If a director is proven to be a “controlling mind” he or she can be brought to task personally. Some common myths – squashed;

  • I don't have a title director, so I can't be held liable - Yes you can.
  • Directors have Limited Liability - No they don't.
  • We are only a small company - This makes no difference, the same laws still apply.
  • They cannot touch my personal assets – Yes they can! The company can indemnify us - Not if it is insolvent!

Did you know?

Directors must in certain circumstances consider the interests of creditors of the company. Such duties were first imposed in 1986 and represent a revolution in the legal position of a director. If a company incurs debts when the directors knew or ought to have concluded that the company would fail, the directors may, if the company subsequently goes into insolvent liquidation, incur personal liability for those debts. This is 'wrongful trading' under the Insolvency Act 1986 (section 214). If found liable for wrongful trading, they may have to pay the company's creditors in full from their own resources; their liability is potentially unlimited.

How much is Directors and Officers Insurance?

Typically, the minimum premiums start at around £200.00 - £250.00 per annum, but the premium is rated on the levels of cover requested and also the size of the company. As with any insurance product, the premium is typically measured on turnover.

Why do Directors and Officers need cover?

With various changes to legislation, directors can become personally liable and/or 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.

What does Directors and Officers Insurance Cover?

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 claims made against the company for situations which lead to 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 libellous or slanderous statements made by directors.

Who might claim against you?

Possible claimants might include:

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

Examples of Claims

  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 a 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 the 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 policy.

If you have are a Limited Company or a PLC and you do not have Directors and Officers Insurance it’s high time you considered it!

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