Directors’ and Officers’ Liability Insurance

Directors and officers are increasingly at risk of being sued individually for alleged professional wrongdoing. Directors’ and officers’ (D&O) liability insurance can offer protection for you and the leaders of your business. This guide is to help you decide if D&O liability insurance is right for your organisation.

Should I Consider Directors’ and Officers’ Insurance? Organisations of all sizes – from multinational corporates to micro-SMEs – are becoming aware of the value that D&O cover provides. Don’t know if D&O is appropriate for you and your business? Ask yourself:

• Does your business have directors – for example, a finance director or HR director? • Does your business have key managers – for example, a chief marketing officer? • Do you run a large or high-profile organisation?

If you answer ‘yes’ to any of these questions, then D&O liability insurance could be the cover you need. D&O policies provide financial protection for directors and officers against the legal consequences of actual or alleged wrongful acts. Policies can cover the personal liability of a company director (which is unlimited) and reimburse the company for any payments made to a third party in defence of one of its managers.

Frequently Asked Questions What are the Benefits of Directors’ and Officers’ (D&O) Liability Insurance? Directors’ and officers’ liability insurance can protect your senior people against compensation claims made against them by shareholders, investors, employees, regulators or interested third parties. These claims are concerned with alleged acts of professional negligence and not intentionally committed illegal acts.

D&O liability insurance can cover your directors and key managers from breaches of criminal and civil law as well as infringements of best practice regulations. It can cover your senior people against any awards for damages, fines and legal fees involved in claims made against them as professional individuals.

Policies usually consist of three elements: Side A, Side B and Side C cover. Where a company refuses or is financially unable to pay for the costs associated with the legal defence of a director or officer, Side A will reimburse the individual in question. Side B comes into play when a company uses its own funds to financially protect the individual in a legal case, with the policy reimbursing that company. And finally, Side C provides cover for the business entity itself when its assets are at risk.

Can You Give Me an Example of a D&O Claim? If your shareholders decide that your financial director has made a misleading statement in your annual report, then they could sue them for professional misconduct. Another example could be the Health and Safety Executive bringing a claim against your HR director for corporate manslaughter after a fatal industrial accident in the workplace.

What do I Need to Consider When Buying D&O Insurance? • The number of directors on your board • A small business with two or three directors might need £1 million cover • The scope of your business activities • A large organisation might need £50 million or even £300 million

This article has been compiled using information available up to 14/09/22. Whilst care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in this document.