Directors and Officers (D&O) Insurance
If you’re a company director or officer, you know that when things go wrong, the buck stops with you. Every decision you make will be examined by your shareholders, colleagues, employees, and clients, as well as external organisations. If they think something isn’t quite right, then they’ll come to you for answers. And that can lead to legal action and compensation claims that could mean the loss of not just a good business reputation, but the personal assets of directors and officers. That’s where we can help. Directors & Officers is a cover section usually arranged on a Management Liability policy, which can also include Corporate Liability, Crime and Employment Practices Liability (EPL) insurance.
At Business Insurance Service, we believe everyone deserves the proper level of financial protection through the right kind of insurance. Our Management Liability (or Directors and Officers / D&O as it’s often referred to, which is a section of an overall policy covering management practices), insurance gives those at the top of an organisation specialist insurance cover that’s specifically designed for high-risk managerial positions.
What is Management Liability?
What Management Liability (Directors and Officers (D&O) insurance doesn’t do is obscure or hide the actions of those who take out cover. Corporate accountability and transparency are paramount if clients, employees, and shareholders are to trust those who sit on the Board or hold positions of power within an organisation. It’s important to remember, too, that it’s not just big companies that are sometimes the subject of legal challenges – small companies and not-for-profit organisations can be equally at risk.
No matter how big or small your company, the legal costs of defence can be considerable, as too are the penalties. To make sure you attract the right calibre of person to work as a director or manager in your company, you have to demonstrate to them that their position is both legally and financially protected, which is why Directors and Officers arranged on a Management Liability Insurance policy is so important.
Management Liability (Directors and Officers / D&O) insurance ensures your senior personnel feel protected, demonstrates to shareholders, employees, and clients that you take your company’s financial responsibilities seriously, and offer additional support financially to your business.
What does Directors and Officers Insurance cover?
While there are plenty of business liability insurance packages on offer, D&O is unique in that it specifically provides cover from the financial impact of claims arising from what is legally referred to as a ‘wrongful act’ such as an error, misleading statement, neglect, omission, or breach of duty. A policy provides you with cover for defence costs and indemnity cover that may include cover for named individuals and protection for the organisation itself.
For example, a manufacturer told one of its suppliers to increase inventory because they were expecting a large increase in production. As predicted, demand for the manufacturer’s product grew but the manufacturer increased its inventory with another supplier instead. The original supplier successfully sued the manufacturer, alleging they suffered damages as a result of having relied on the manufacturer’s promise.
Directors & Officers insurance cover provides defence costs and indemnity cover to the entity listed on the policy declarations, which may include:
- Cover for individual directors and officers;
- Reimbursement to the organisation for a contractual obligation to indemnify directors and officers that serve on the board; and
- Protection for the organisation or entity itself.
It may not, however, cover losses for fraudulent or dishonest actions, or willful violations of the law.
Indemnification provisions are typically included in the charter/bylaws of a company. While an important risk component, small to medium-sized enterprises or not-for-profit organisations often do not have the financial resources to fund the indemnity provisions, making the bylaws hollow. A directors & officers policy can provide an extra blanket of security in the event of a covered loss.
A ‘fraud’ exclusion is typically included in a D&O policy, which eliminates cover for losses due to dishonest or fraudulent acts or omission or wilful violations of any statute, rule or law. D&O cover can be tailored to your needs but be aware that D&O insurers are not consistent with their policy forms. This fact, plus the complexity of D&O claims, requires the insurer to have market commitment and deep expertise as well as the financial resources to handle potential claims.
There are also additional forms of cover to adequately protect directors and officers, including:
- Entity cover (Corporate Liability);
- Payment priority for insured persons;
- Severability of the insured as well as severability of the application;
- Cover over time, meaning cover responds to past, present and future directors and officers;
- Pay on behalf clause; and
- Duty to defend clause
What is covered on a Crime Insurance policy?
Crime is a constant threat for organisations of all types and sizes. Having money, property or other financial assets stolen can result in devastating losses. This video provides an overview of the benefits that come with a commercial crime insurance policy.
There is no ‘one-size-fits-all’ Management Liability (Directors and Officers / D&O) policy, which is why organisations who want to take out a D&O policy must talk to a broker who understands the complex nature of commercial insurance and business liability. That’s where we can help.
Read more on Commercial Crime insurance here.
Business Insurance Service – your insurance professionals
With a combination of years of experience and expertise in the complex issues of corporate and commercial insurance, our brokers are in a position to source Directors and Officers insurance that is relevant to your sector and your individual circumstances. Working with both commercial and not-for-profit organisations, we understand the challenges faced by businesses of all sizes, and are in a position to source insurance cover from some of the largest and most respected names in the industry, including Lloyds of London.
We are members of the British Insurance Brokers Association and adhere to all current UK regulatory legislation, so you know you’re dealing with a professional organisation that takes its responsibilities as brokers to the business community seriously. All our brokers are qualified and accredited, and use their own experience both in the insurance and the business sectors to source all-risk cover for Directors and Officers. Whether you’re an SME or a multi-national, a not-for-profit organisation or a global enterprise with officers around the world, we can help.