Understanding Directors’ and Offi cers’ liability insurance


W


hat is Directors’ and Offi cers’ liability insurance? Directors’ and Offi cers’ liability insurance,


otherwise known as “D&O”, is the most eff ective way to protect your company’s decision makers against the potential costs or claims that could arise against them. Many prospective directors require companies to hold D&O insurance to a satisfactory level of cover before agreeing to join a company.


People make mistakes, even directors and offi cers, and with these demanding roles comes increasingly high exposure to risk. Not only this, but these individuals can also be legally held liable for their mistakes as well; the law imposes signifi cant and broad duties on directors and offi cers, which can be easily breached.


D&O insurance not only protects the personal assets and liability of directors but also protects your company against fi nancial losses, which may be incurred as a result of mistakes made by your company’s directors’ and offi cers’. D&O insurance also provides cover for defence costs, the cost of legal advice and legal representation for regulatory investigations or settlements of claims and usually any award of prosecution costs, however, it is extremely rare for fi nes and penalties from regulatory investigations to be covered under any insurance product. Some directors and offi cers may not be aware of their potential personal liabilities and, in turn, neglect purchasing D&O insurance to protect themselves. However, the cover off ered by D&O insurance is not usually covered by other policies and is a valuable cover, particularly in the current trading environment. A data survey found that only approximately 27% of SME’s purchased D&O insurance.


How does D&O insurance help protect your business??


Any decision made by a director or offi cer in the workplace, innocent or not, can result in personal claims or proceedings and investigations. It’s not just multi- million-pound companies that need D&O. T e same risks that aff ect large businesses can also aff ect the SME sector. Not only are we seeing shareholders becoming increasingly vocal in the conduct and decision making of directors, but regulators too are seeking to extend their reach. T e obligation on companies to self-report together with the growing activity of regulators such as; the Health and Safety Executive, HMRC, Revenue Scotland and Environmental Regulators, increases the chances of regulatory intervention as well as the criminal investigation


of directors and offi cers. Claims and investigations can arise from many areas of commercial operations, even if claims made against a company and a director or offi cer are unfounded, the cost of defending the case can not only take up valuable time, but also result in a signifi cant expenditure of legal and oſt en expert costs. In fact, an SME may be more vulnerable to the risk of fi nancial devastation as a consequence of an investigation or prosecution and even if found not guilty it is extremely diffi cult to recover the costs of defending proceedings.


Paul Samways, Managing Director of Miles Smith Insurance Solutions, explains why D&O cover is a vital part of all businesses insurance portfolio:


“When you fully understand the true exposure for Directors and Offi cers within a Company, it is really surprising that the fi rst item on their insurance purchase agenda is not cover for themselves. T ere is clearly a great argument that says before talking about the insurance arrangements for the company, they should fi rstly talk about the protection for themselves…. It seems like such an obvious buy.”


What factors should your company consider when purchasing D&O insurance?


85% of SME businesses would prioritise the level of cover off ered to them by a broker, over the price of the insurance 72%. When deciding to purchase D&O insurance, there are a range of factors that should be taken into consideration such as: the level of cover, transparency of T&Cs, overall claims service, brand, price, additional pre-loss services and previous experience of the provider.


Written by Miles Smith Team


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