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Directors and Officers Insurance

... also known as D&O Insurance – covers the cost of compensation claims made against your business’s directors and key managers (officers) for alleged wrongful acts.

Wrongful acts include:

  • breach of trust
  • breach of duty
  • neglect
  • error
  • misleading statements
  • wrongful trading

Do I need it?

If your company has directors or key managers, D&O cover can cover the cost of compensation claims made against them by shareholders, investors, employees, regulators or third parties.

Directors and Officers of a company have specific duties, responsibilities and powers relating to their positions. These are usually set out in their job description or terms of reference. If a Director or Officer of your company is found to have acted outside of their terms of reference, civil, criminal or regulatory proceedings can be brought against them.

Directors’ and Officers’ liability insurance covers the cost of defending these proceedings, as well as any compensation costs that arise from an unsuccessful defence.

If directors and officers do not have insurance, they face a greater risk of not being able to defend themselves against:

  • disqualification from holding the position of director
  • civil proceedings which can lead to hefty legal costs and awards for damages
  • criminal prosecution which can lead to fines and possible imprisonment

What it covers

Directors’ and officers’ liability covers claims made by:

  • Regulators, e.g. investigations by the Health and Safety Executive (HSE) or the Office of Fair Trading
  • Shareholders or Investors, e.g. for failure to act in the company’s best interest
  • Creditors

It also covers claims brought in relation to:

  • Breach of European legislation
  • Insolvency

What is not covered

Directors’ and officers’ liability does not cover claims made against your organisation as a whole, only those made against individuals for alleged wrongful acts carried out in their capacity as directors or officers.

Employment practices liability insurance can be bought as an extension of directors’ and officers’ liability insurance.

It covers employee discrimination claims, e.g. for unfair dismissal, harassment, or failure to promote a person. Directors’ and officers’ liability sometimes covers defence costs arising from criminal and regulatory investigations into your company where no actual wrongful act has been alleged against a director.

Today employees are more litigious than ever. In a world of no-win no-fee legal representation, employment tribunal cases are now in the hundreds of thousands each year.

Developing legislation means that there’s a broad range of potential actions to consider including:

  • wrongful dismissal or termination
  • harassment or discrimination on the basis of sex, race or religion
  • employment-related libel, slander or defamation
  • invasion of privacy
  • wrongful failure to employ or promote and retaliation (where the employee believes that raising a complaint has led to their employer discriminating against them).

A lot is expected of employers in their handling of employee actions. The burden of proof lies heavily with employers. Strictly defined disciplinary, dismissal and grievance procedures must be followed otherwise the case could be lost from the start by default. Not keeping abreast of the latest developments and regulations could lead to time consuming and expensive mistakes.

Even unfounded allegations can take time, energy and money to defend.

Employment Practices Liability insurance is a means to protect the company and its management by meeting damages, judgements, settlements and defence costs for many employment practice violations.

If you would like a quote for Directors and Officers insurance, please contact one of the team at GM Insurance Brokers on 01392 426799.

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