Directors' and Officers' Insurance, which is also known as Management Liability or D&O Insurance, offers financial protection for individuals whilst acting in a managerial capacity.

The reality of being a company director in the UK is that you and your fellow bosses have a duty of care to run your business correctly. This Duty extends your liability, and can put your personal finances on the line if someone accuses you of mismanagement, breaching company law, health and safety failure, employment-related wrongdoing or anything that can bring a claim.

Unfortunately, whilst being a limited liability company offers some protection, it doesn’t stop you from being personally sued.

Luckily, directors’ and officers’ insurance (D&O) can help with that.

On its own, D&O insurance covers you and your fellow company leaders if you’re accused of serious mismanagement or making bad decisions as part of your everyday duties.

It’s a common misconception that personal liability claims are covered under professional indemnity, but this is unlikely. A separate D&O policy is the only way to guarantee personal protection for those with management responsibility in your business.

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Buying directors’ and officers’ liability insurance can provide cover

Directors may be required to personally indemnify the company against losses from claims arising from the following circumstances:

Contracting personally – If a director enters into a contract with a third party without making it clear it is on behalf of the company, the third party may believe it is a personal contract. In the event of a dispute, the director may be held personally liable. This also applies if they sign contracts purportedly on behalf of the company before its incorporation.

Acting beyond company authority – As noted above, directors are limited to act within their authority as outlined in a company’s Article of Association. If a director exceeds that authority to the detriment of the company, they may be held personally liable to recompense the company financially.

Misrepresentation – If a director deliberately misleads a third party, who suffers financial loss as a result, they may be personally liable to reimburse those losses.

Bribery and corruption – The Bribery Act 2010, which came into force in July 2011, was extended to include all private sector transactions in addition to the previous public officials. Where a company is convicted of an offence of offering or receiving a bribe, directors can be held jointly liable with the company if they can be shown to have consented or connived in the bribery. If convicted, prison sentences can be up to 10 years plus unlimited fines.

Health and Safety – A Director who causes a company to breach health and safety law because of their consent or negligence can be personally prosecuted.

Serious Data Protection Breaches – If a company tries to avoid fines from the Information Commissioners Office (ICO) by closing the business down, the ICO might try and pursue the matter with ex-Directors (i.e. hold them personally accountable).  This might be the case if the firm was involved with mass illegal phones calls or texts (i.e. nuisance communisations).  Smaller, one off incidents are less likely to be pursued on a personal basis, and clearly if the business is still operating, any fines would be levied against it rather than individual Directors.

Fraudulent trading – Directors can be sentenced for up to 10 years in prison if found guilty of fraudulent trading, which is where they purposefully put company assets beyond the reach of creditors if they suspect the business is insolvent. If a director continues to trade with the knowledge that the company is insolvent, courts may order them to personally pay any assets incorrectly dealt with back to the company.

Disregarding court orders – A director can be held in contempt of court if they wilfully ignore a court order on the company, potentially leading to imprisonment.

Environmental breaches – A director can be held personally liable if they commit, or allow someone else to commit, an offence that breaches environmental regulations.

Manslaughter – Individual directors and managers are subject to prosecution under common law for manslaughter where 1) They owed, and breached, a duty of care to the deceased, and 2) The breach materially contributed to or was the cause of death, and was so negligent that it can proved they had a disregard for the life of the deceased. A conviction for gross negligence manslaughter carries a maximum sentence of life imprisonment.

Breach of Intellectual Property Rights – Where a director arranges or allows someone to infringe a third party’s Intellectual Property rights, they can be personally held liable to pay compensation.

Anti-competitive behaviour / price fixing – A director can be imprisoned for up to five years if found guilty of causing their company to enter into cartel agreements involving price-fixing, limiting production or supply or influencing bidding processes.

Mandatory trading disclosures – Directors can be fined if the company fails to comply with, or make trading disclosures required by, The Companies (Trading disclosures) Regulations 2008.

Acting while disqualified – A director can be held personally liable if they act in the management of the company while disqualified, or acting on the instructions of someone else who is disqualified.

Directors' and Officers' FAQs

Why get directors' and officers' insurance?

D&O cover provides three-sided protection. One side covers directors personally for fines, penalties and legal expenses. The second reimburses the company for paying on behalf of the directors. And the last covers the company should it itself be named in the lawsuit.

Who needs directors' and officers' insurance?

If your business is set up as a partnership or limited company (i.e. you’re not a sole trader) and therefore has directors or key managers (officers), directors’ and officers’ insurance may cover the cost of compensation claims made against them by shareholders, investors, employees, regulators or third parties.

Who is covered under directors' and officers' insurance?

Rather than covering a business as a whole, D&O insurance protects the personal assets of a company’s directors and officers in the event that a claim is made against them personally (for either actual or alleged mismanagement) by a third party, such as an investor, an employee, a competitor or a customer.

D&O Insurance for companies looking for external funding

It’s common for investors interested in a company to make D&O insurance a must-have requirement. This protects directors and officers from allegations of mismanagement. D&O cover provides protection against legal action, fines, penalties, and disqualifications from being a director. If you’re a high growth tech business, you may find it helpful to speak to one of our advisors about your insurance requirements.

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