Insurance can be confusing. You need a number of different types of cover to comprehensively protect your business. Then there are additional covers to think about, like Loss Recovery, Cyber or Directors’ and Officers’ Liability Cover. That’s why we’re here to help you decipher the type of cover you need to protect you, your employees and your business.
In this blog we answer some of the key questions you might have about Directors’ and Officers’ Cover.
What is Directors’ and Officers’ Liability?
A Director or Officer can be personally sued for wrongful acts that happen while they’re managing the company. Directors’ and Officers’ Liability Insurance protects these individuals against legal and defence fees, fines and compensation costs.
Non-Executive Directors, Nominee Directors, Start-up Directors and Executive Directors should all consider this type of cover. Sole traders won’t need Directors’ and Officers’ insurance.
Are Trustees covered?
Trustees will need a Trustee Indemnity policy. This is similar to Directors’ and Officers’ Liability cover but tailored for trustees of non-profit or community organisations.
Why do I need Directors’ and Officers’ Liability cover?
If you don’t have insurance cover in place, but you are personally sued for a wrongful act as a senior member of a business, you will be left personally liable for all costs. This includes paying for legal fees and compensation pay outs. Your personal assets could be at risk if you don’t have the immediate funds available.
Surely I am covered under my business’s insurance policy?
If a senior manager acts outside of their terms of reference (i.e. the responsibilities in their job description), they could be personally sued. Individuals must be able to be held accountable for their actions.
What could an individual within a business be sued for?
Wrongful acts could include negligence, breach of duty or trust, errors, health and safety issues, defamation, misstatement, contract disputes, financial reporting, libel, breach of warranty, wrongful trading and more. An individual could be sued for breach of fiduciary duties also, though these are vague and what constitutes a fiduciary duty can be open to interpretation.
Who could sue me?
Anyone who could be impacted by an wrongful act. This includes employees, contractors, competitors, other senior members within the business, investors and shareholders, customers, suppliers, creditors, regulatory groups and much more.
Why would other business shareholders or employees sue me?
If your business loses money or suffers reputational damage as a result of your mistakes, the business is likely to want to recoup these costs. For examples, HSE fines are increasing and if your business suffers a fine for a constant or serious breach of health and safety law then the finger may point towards the individual responsible for this.
How can I mitigate these risks?
Businesses must ensure corporate governance guidelines are in place. This details what the board’s responsibilities are, who is accountable for key decisions and how the business and its employees must behave. Ensuring corporate policies are in place helps businesses comply with regulatory and legal requirements. It also helps to provide clear standards, procedures and responsibilities for Directors and Officers, who mustn’t act outside of these.
What’s the difference between Directors’ and Officers’ Liability and Management Liability?
The two terms are interchangeable. However, each policy will differ so it’s important to check your individual wording.
Is Directors’ and Officers’ cover tax deductible?
Yes, Directors are able to deduct against their earnings for Directors’ and Officers’ insurance premiums.
How much does Directors’ and Officers’ insurance cost?
The cost of Directors’ and Officers’ cover will depend on individual circumstances. Things taken into consideration will include things such as turnover and assets, and the level of cover you require.
How much cover will I need?
The amount of cover needed will depend on an individual’s job role, responsibilities and risk. Your insurer or broker will be able to advice you on the level of cover you’ll need.
What am I not covered for?
Your insurance policy won’t provide cover for fraudulent or criminal activity. The policy is also unlikely to cover you for any ongoing claims. Many Directors’ and Officers’ Liability policies will also exclude protection against claims made from a majority shareholder.
Am I covered for discrimination claims?
Optional extensions include Employment Practices Liability Insurance. This will protect you against slander or defamation of character, invasion of privacy, wrongful dismissal or termination, discrimination, harassment and more.
How do I get Directors’ and Officers’ cover?
The marketing is hardening, meaning some insurers are reducing capacity and reducing business trade types. Typically, this means premiums may increase and it may be harder to get the level of cover you need. That’s why insurance brokers such as Romero are here to help. We’re able to approach the market on your behalf to find the cover you need for the most affordable price.