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Regardless of your company’s size, the legal cost to defend yourself as a director or officer or the business itself is substantial, as are the potential penalties that can be personally incurred. To protect you and your business, Directors and Officers Liability Insurance is essential.
Why are you more at risk?
In today’s business climate of corporate transparency and accountability, an organisation’s officers and directors face a myriad of employment-related exposures. Claims can come from many sources, employees, regulators, shareholders, creditors, customers, etc. Ever-changing regulations, increased employee awareness of employment rights as well as the rise of shareholder activism means directors are more frequently at risk, translating to rising claims and escalating settlement costs.
How is it different to Liability Insurance?
Unlike liability policies that provide cover for claims arising from property damage and bodily injury, a Directors and Officers (D&O) Liability policy specifically provides cover for a ‘wrongful act’, such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.
Potential Legal Costs
The cost of defending D&O claims can run well into six figures, leaving a business financially crippled. Even worse, your directors and officers put everything they have on the line, because in the event of a D&O liability claim, even their personal assets may be at risk. As a result, D&O Liability Insurance has become an essential component of most businesses’ insurance portfolios.
In simple terms, claims made against directors or officers of a company arising from any decision made or act carried out by them. These can range from claims made by unhappy customers to official investigations.
For example, claims by investors and shareholders who hold the company directors personally for their losses as well as actions brought by liquidators, HMRC, HSE investigations and even the Police or SFO where fraud is suspected.
The range of protection provided by a Directors and Officers (D&O) policy can vary greatly from one provider to another. Claims generally arise from the following scenarios:
For public companies, the most likely claimant would be a shareholder or investor in the business. For companies of all types there is a risk of a claim from an employee as a result of your actions, this could include negligence in terms of health and safety or discrimination.
While D&O policies have existed for a long time, there can be no doubt that the requirement for this type of protection has never been more important. There are numerous reasons for this, including:
While the risks of a claim are more common for those working in public companies, this does not remove the necessity of a policy for businesses of other types. If your business operates with a board of directors or advisory committee then a D&O policy should be considered vital.
Often not for profit organisations are left unprotected from legal action if a claim is undertaken against the board, especially within smaller organisations where there is less awareness of the need for Directors & Officers Insurance.
A Directors and Officers policy is a very specific type of cover, designed to protect against a specific type of risk. Cover is not provided for claims against your company, for example for illegal practices that stem throughout the business or negligence at lower levels.
D&O liability insurance provides cover for wrongful acts allegedly undertaken while acting as a director or officer for the company.
It’s a common misconception that personal liability claims would be covered under a Professional Indemnity (PI) policy. But this is unlikely to be the case. Having specific Directors and Officers Liability Insurance is the only way to guarantee personal protection for those with management responsibility in your business.
If you’re running a company there are a variety of policies that it’s necessary to undertake, in addition to your Directors and Officers insurance policy you may wish to consider:
Professional Indemnity – protection for service errors, contract performance disputes or any other professional liability issues. These policies can include legal defence costs, damages and compensation due to professional negligence, which can be substantial.
Public Liability – cover designed to protect your business in the event of a claim for an injury or damage to property by anyone visiting your premises.
Employers Liability – required by law for most businesses, Employer’s Liability provides financial protection to cover compensation awards for injury or damage suffered by an employee, volunteer or freelance worker.
Office and Property Insurance – can include cover for both the physical premises and the contents within as well as public and employers liability and business interruption.
Business Interruption Insurance – designed to enable you to continue to pay the bills and retain customers should something happen that results in a loss of income.
As your business grows and develops, your insurance needs will undoubtedly change. FOCUS will work with you to ensure that the exposure and risks faced by your business will be protected, leaving you with complete peace of mind.
To find out more, contact us.