Directors and officers (D&O) liability insurance protects the people who run a company against personal liability for decisions they take in that role. If a director or officer is sued for a wrongful act in managing the business, D&O cover pays the legal defence costs and any damages or settlement, protecting the individual’s own assets rather than the company’s balance sheet.
A director’s duties are personal. When something goes wrong, a claim can be brought against the individual, not only against the company, and the company cannot always indemnify them. D&O insurance exists to fill that gap.
Who does D&O cover, and who brings claims?
Cover extends to current, past and future directors and officers of the company and its subsidiaries. Claims can come from a wide range of people: shareholders, employees, creditors, customers, competitors and regulators. Common triggers include alleged mismanagement or negligence, breach of duty, misleading statements, regulatory investigations, unfair dismissal or discrimination claims, and defamation.
What counts as a wrongful act?
D&O policies respond to wrongful acts, a defined term that typically covers an actual or alleged error, omission, misleading statement, negligence or breach of duty by a director or officer acting in that capacity. The claim does not have to succeed for the policy to engage; the cost of defending an unfounded allegation is exactly what the cover is there for.
What does D&O not cover?
Standard exclusions include fraud, intentional criminal acts, illegal personal profit, and fines and penalties that are uninsurable as a matter of law. Cover for conduct such as fraud usually falls away only once that conduct is actually established, so defence costs are generally paid up to that point. Because exclusions and the way they are triggered vary between insurers, the wording matters.
How is D&O different from management liability?
D&O is often sold as one part of a management liability package, alongside covers such as corporate legal liability and employment practices liability. D&O protects the individuals; the wider package can also protect the company itself against related exposures. Smaller companies often buy the combined package, while larger organisations buy standalone D&O cover.
Does a small company need D&O?
A common misconception is that D&O is only for listed companies. In practice, directors of private companies, and of not-for-profits and charities, carry the same personal exposure to claims from HMRC, creditors, employees and regulators, often with fewer resources to absorb the defence cost. The question is not company size but whether a director could personally be on the receiving end of a claim.
Arranging the right cover
D&O limits, exclusions and the way defence costs are handled vary considerably between insurers, and the right structure depends on the company’s size, sector and risk profile. A broker can match the wording to your exposures rather than leaving you to read it cold. To arrange or review directors’ and officers’ cover, get a quote or speak to the team.