Directors and Officers Insurance - Business Guide

Directors and Officers insurance, or D&O insurance, covers company directors and officers in the event that they are accused of being engaged in wrongful or misleading acts whilst conducting company business.

Typically, a variety of people or groups may take action against directors - including shareholders, customers, or regulatory bodies. This type of cover will reimburse company directors and officers in such an eventuality.

Why do you need cover?

Many directors assume that they are covered for legal actions against them as they have a "limited liability company". This may not be true in all cases, and claimants may pursue you personally depending on the circumstances of the claim.

You may find that investors will often require your company to have taken out D&O insurance cover before providing funding.

New directors who join your company may also insist on sufficient directors' insurance being in place, as they will not want to risk their own personal assets in the event of a claim against the company.

What does D&O 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 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 libelous 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 your 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 your 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 policies.