What is Directors & Officers Liability Insurance (D&O)?
Also known as D&O or Management Liability, Directors & Officers Liability Insurance is a type of liability cover that protects a company’s directors, senior management and other key personnel for claims made against them for wrongful acts committed by them whilst they were acting as a director or officer of a company.
Wrongful acts include alleged or actual:
- Breach of trust or duty
- Wrongful trading
- Breach of warranty of authority.
The personal assets of a director are at risk as a result of a wrongful act, actual or alleged! (You don’t have to be guilty to incur legal defence costs.)
Why do I need Directors & Officers Liability Insurance?
As a Director or Senior Manager of a business, part of your remit is to make key decisions on how your company is run.
Of course, you will base your decisions on what you believe is best for your employees, customers and all those associated with your organisation.
However, if your actions were to result in someone getting injured or your businesses reputation being damaged, there is a risk that you could be personally sued.
In the event of such a claim being made against you, Directors & Officers Insurance could prove invaluable; providing cover for legal cost, expenses and any civil damages awarded against you. Reimbursement to the company if it pays out to protect you.
Example Directors & Officers Claims
A director was named personally in the unfair dismissal of an employee from company X. The director was required to attend an Employment Tribunal and offer a defence to the charge. The director had to engage their own legal counsel and fund their own defence costs from personal monies and assets. The case against the director was dismissed. The legal costs remained.
A director is sued by a marketing company they contract. The marketing company is initially hired by the director to carry out research regarding a proposed new product line. The director concerned does not have the authority to enter into the contract and the company cancelled the agreement. The marketing company sues the director personally for the costs they have incurred.
Following a road traffic accident, the company’s vehicle involved was found to have been un-roadworthy. The transport manager responsible for overseeing the servicing and maintenance of all the company’s vehicles was prosecuted. The company itself was named as a co-respondent for failing to makes such checks as were required and for not putting sufficient safeguards in place, to ensure the roadworthiness of its vehicles.
What does Directors & Officers Liability Insurance cover?
Provided that the relevant sections are covered, to give you a better understanding of what Directors & Officers Liability Insurance could protect you against, take a look at the following examples. These are all based on genuine claims. In each instance, having Directors & Officers Liability Insurance helped protect the individuals involved.
When an employee personally named a director within their unfair dismissal claim, that director was required to defend the charge against them. This meant they had to employ and personally fund their own legal counsel to act on their behalf.
The case against the director was dismissed. The legal costs remained.
Poorly maintained fleet vehicles
When a company vehicle was found to be unroadworthy following a road traffic accident, the transport manager whose job it was to oversee servicing and maintenance, was prosecuted.
The company was also named as a co-respondent for failing to put sufficient safeguards and checks in place, to ensure the roadworthiness of their fleet vehicles. The D&O policy covered the cost of legal fees for both the business and the named staff member.
Not authorised to enter into contracts
A company director hired a marketing agency to carry out some research for a proposed new product line. However, it was later found that they did not have the required authority to do this or enter into any such contract with the suppliers.
As a result, the company cancelled the agreement with the agency, who in turn sued the director personally for the costs they had incurred.
Prosecuted fund manager
A fund manager responsible for compliance at an asset management company, was prosecuted by the Financial Conduct Authority for failing to act with due care, skill and diligence.
Found guilty of basic, fundamental and serious failings, the fund manager was not only fined but had to pay the costs for his own legal defence.
What does Directors & Officers Insurance not cover?
These examples prove that Directors & Officers Insurance cover can help protect businesses in a number of ways. However, as with all policies, specific insurance requirements vary from company to company.
Understandably, Directors & Officers Insurance cannot guarantee to cover all situations. Claims involving bodily injury and property damage, fraud and dishonest acts, pollution, and breach of contract will typically be excluded.
Talk to Stanmore the insurance people about Directors & Officers Insurance now – call our team on 01204 570 370