Understanding Directors & Officers Insurance

Directors & Officers Insurance (D&O) is an increasingly popular and useful form of insurance protection for businesses but it is still somewhat misunderstood. Here, we’ll take a quick look at exactly what D&O is and why more and more businesses are taking advantage of the protection it can offer.

What is D&O Insurance?

Directors & Officers Insurance is designed to protect the senior staff and decision makers within a company from potentially damaging claims made against them. This legal action could come from dissatisfied customers, disgruntled employees, shareholders and even regulatory bodies and D&O can cover the costs of defending against such claims.

D&O insurance typically covers actions or situations that arise as a result of a misunderstanding (ie, the director is found innocent of any allegations but has to pay for their legal fees until this decision is reached) or of action (or inaction) that is deemed to be wrongful or damaging to their company, employees, customers or members of the public. This can include things like employment practices and HR issues, reporting errors, misrepresentation, shareholder action and decisions that exceed the authority granted to a company officer. It won’t cover you for intentionally criminal activity so things like fraud, non-compliant acts, illegal remuneration, property damage and bodily harm will be excluded.

Who is D&O For?

Directors & Officers Insurance is, as its name suggests, for the directors and officers of a company. This can include, CEOs, managers, principals, trustees, shareholders or anyone else in a position of authority within a business, charity or organisation. If you manage others, and can make decisions that have an impact upon the company at large, particularly regarding company policy and financial matters then D&O Insurance is for you.

Why is D&O A Good Idea?

If you are a director, decision maker, or prominent figure within your company, you could find yourself in the firing line if something goes wrong, or if someone is dissatisfied with the company in general. While it is not uncommon for individuals to take legal action against companies as a whole, it is increasingly common for them to focus their ire upon an individual, rather than the company at large.  This means that if a customer or client feels they have been wrongfully treated, or a former employee is not happy with the terms of their dismissal, they could take legal action directly against you – and you are personally liable for this.

What this means is that although you may have committed the actions in questions on behalf of your company, it is you, not the company that will have to pay any legal fees, compensation payouts or fines. The costs associated with this can be huge and without D&O Insurance in place, they will be coming directly out of your pocket. It’s not uncommon for D&O claims to run into the thousands or even millions. Indeed, in 2014 the Bank of America agreed to pay an astonishing $17bn (£11.2bn) in response to a government investigation into their mortgage services and purchases of Merrill Lynch & Co. and Countrywide Financial Corp.

Of course, most claims aren’t on this scale but they are not exclusive to multi-national corporations and the heads of SME are still exposed to the same risks.Taking steps to ensure you and your other senior staff are protected from similarly devastating financial loss is surprisingly easy.

At C&M, our experienced and independent brokers can talk to you about your business to ascertain what D&O cover would be most suitable for you. To find out more about D&O cover, or to discuss a policy for your business, call 01708 764 000 or email us at mail@cm-insurance.co.uk.