So then, 'What is directors' and officers' insurance?' you ask us. It's a recurring theme.
The short answer is: cover that can help you navigate very stormy waters if you own or help run a business and you take a chance with your duty of care. That's because the law says you’re personally liable for the consequences.
Yes, that's right - personally liable. As in, you have to pay. Worse still, that same law applies even if you didn't know there was an issue. Ignorance is no excuse, apparently.
What does directors' and officers' insurance cover?
Directors’ and officers’ insurance (D&O) covers the owners, directors and managers of your business, against the risks associated with running it. It’s insurance for bosses, basically.
If an employee, shareholder, competitor, regulator, or pretty much anyone thinks someone in charge hasn’t exercised ‘due care’ when running your firm – in whatever capacity – they can sue the company and the individual in question.
Typical claims involve such things as financial mismanagement, breach of company law (the Companies Act 2006 alone contains hundreds of possible areas of non-compliance), health and safety issues, and employment practices problems (really big one, this).
A D&O policy pays to defend you in court and, if you’re liable for damages, picks up the tab for any awards made to the claimant.
What’s in it for you?
In short, everything.
Most professional insurance deals with claims against the company and policies are designed to protect its reputation and its bottom line. Claims against directors are different because legal action is brought specifically against the individual.
And, if you’re sued personally, you have to respond personally.
That means putting your hand in your pocket to defend yourself. Solicitors aren’t exactly cheap and, with unlimited liability thrown in if you’re guilty, worse-case scenario could see you waving goodbye to your savings, your house, your car …
Do you need directors' and officers' insurance?
Of all the professional insurance we deal with, directors' and officers' insurance could, arguably, be the most valuable. No other cover protects a company and the individuals who run it in quite the same way.
So it’s a constant puzzle we’re not asked for it as much as we’re asked for, say, professional indemnity insurance. That's maybe because it's not so well understood.
Risks associated with the work you do for clients come and go as they do. Risks associated with running a business start from day one and never go away.
In theory, every business owner or director needs a D&O policy. It should be the first thing on the shopping list.
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