Director’s and Officer’s Liability insurance protects your business’s directors and senior managers in the event that it is alleged they have made a mistake, taken a bad decision or committed a “wrongful act” in the course of carrying out their duties for the company. These allegations could be made by shareholders, investors, employees, regulators or other third parties.

Wrongful acts include:

• breach of trust
• breach of duty
• neglect
• error
• misleading statements
• wrongful trading
• Health & Safety breaches

Allegations need to be investigated and can be costly. Even if a case never gets as far as the courts, investigation costs can quickly mount up. This can have a significant impact on the alleged wrongdoer’s personal finances, which is why D&O insurance is an important way of protecting key senior individuals in a business.

D&O insurance covers the legal defence costs as well as any compensation awarded to the claimant.

All directors and senior managers should be covered by a D&O insurance policy. This should include all board members as well as non-executive directors too. In short, all senior directors and managers who are responsible for taking key decisions should be protected with D&O insurance, paid for by the company.

As with other types of liability insurance, the amount of D&O cover you need will depend on a variety of factors. These include:

• the size of your business
• the sector in which you operate
• the value of projects that you work on or deals that you make
• the levels of authorisation given to directors and senior managers
• how risk averse your business is.

Our recommendation is always to have as much cover as you can afford to ensure the right amount of protection is in place should you need it.

D&O insurance and Professional Indemnity insurance both provide protection against bad advice and accidental mistakes. However, there is a clear distinction between the two types of cover:

• PI insurance protects the business in the event that a client alleges they’ve been given bad advice or made a mistake that has resulted in financial loss
• D&O insurance protects the directors and senior managers in the event that one of them allegedly makes a mistake carrying out their duties as a director or officer of the business which causes harm, financial or otherwise, to others.