Directors and officers insurance

Directors’ and Officers’ Insurance (D&O) is also known as management liability insurance. Its purpose is to protect entrepreneurs from the risks associated with running a business. This is probably one of the least well-known and most overlooked insurance risks faced by the owners and senior members of limited companies.

Some contractors are under the misapprehension that because their business is conducted through a company with a limited liability that they are immune for any personal financial exposure beyond what they have invested in their company.

What the law expects of Directors

Directors of limited companies are required by law to act honestly and competently to protect the interests of the company. They can be held personally liable for any failures in their duties and find themselves facing unlimited personal liability for any wrongful or negligent acts which bring about a material jeopardy to the company’s well-being. D&O insurance has been designed to provide financial protection to the directors and senior management (if any) of the company if they are sued for any breach of their legal duties and responsibilities.

What does Directors & Officers insurance cover

This type of insurance should cover directors personally for fines, penalties and legal expenses; it reimburses the company for paying such financial levies on behalf of directors and officers and lastly covers the company should it be named in any legal action. Personal liability claims can cover a range of issues from breaching health and safety regulations, alleged workplace bullying, misrepresentations in tendering work to errors in financial reporting.

Directors & Officers Insurance FAQs

My company already has Public Liability Insurance and Professional Indemnity Insurance. Why do I need this cover?

You may decide that you don’t need it. However, it’s important to remember that Directors’ and Officers’ Insurance covers claims in connection with how the business is run and not the business activities it carries out. It protects you as a director in the way in which you manage the business.

I’m making a pitch to potential investors in my company. Would having this cover be of any value?

Directors & Officers Insurance cover would probably assure any investors that you are running a serious business. It would protect you against any accidental misrepresentations to investors which subsequently caused them to lose money.

My friend’s limited company has gone bust and he’s being accused of being negligent by creditors and facing a large legal bill. Would Directors & Officers Insurance help protect me if my company failed?

Allegations of negligence by directors can be costly to defend with legal fees alone possibly running into thousands of pounds. If you find yourself in the same situation as your friend, without Directors & Officers insurance you may have to pay your defence costs (and any subsequent compensation payments) out of your own funds.

What sort of claims and proceedings could involve me being exposed to a personal liability?

Here are some examples:

Actions brought by liquidators of the company where they suspect wrongful trading or incorrect payments to creditors
HMRC challenges where insolvent trading or misappropriation of tax payments is suspected
Police investigations where fraud is suspected
HSE investigations where negligence is suspected

What level of cover should I be looking for?

You may find that your professional or regulatory body sets out a minimum limit of cover or a client will specify cover for a particular contract. If not, you should seek advice from your broker as to what is best for yourself and your business.

Can my company claim a tax deduction for the premiums it pays on a Directors’ and Officers’ Insurance policy?

Yes. It is also possible to claim a personal tax deduction if you decide to pay the premiums yourself.

As the director of your own limited company it is your responsibility to ensure you have the right level of insurance cover however if this is something you would be interested in purchasing, this type of insurance is available online and through reputable local insurance brokers and providers.

Public Liability Insurance

Public Liability Insurance (PLI) pays out on behalf of the holder if a third party suffers loss or damage, is injured, or property is damaged during the course of the insured conducting their business activities.

Read about PLI

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