Don’t Have D&O Insurance? Why Not?

We all know that we live in a world that is becoming is increasingly more and more litigious. As this litigation culture continues to grow, if you don’t have Directors and Officers Insurance, also known as D&O Insurance, you are potentially exposed to losing your home, your car, your savings – in fact all your personal assets are at risk.

What is D&O Insurance?

Your directors, partners, officers, and key managers are likely to have more responsibilities due to the nature of their role.  And yes, their work can be exciting and fulfilling, but it does put them at a higher risk.

D&O Insurance covers the cost of compensation claims made against your directors, officers, or high-level management for alleged wrongful acts. Claims could be made by dissatisfied employees, clients, investors, stakeholders, and regulators and could involve civil, criminal, or regulatory proceedings. A D&O policy can also cover any legal costs that arise for directors in defending their case.

What is a wrongful act and how do claims arise?

According to the Association of British Insurers (ABI), wrongful acts include:

  • Breach of trust
  • Breach of duty
  • Neglect
  • Error
  • Misleading statements
  • Wrongful trading

Mistakes sometimes happen. However even if a director, officer, or key manager acted in good faith and didn’t intend to commit a wrongful act, this could still trigger a claim. And it’s also crucial to remember that you don’t have to have been involved in an incident.  You can have robust systems and controls in place but employees may not always follow them to the letter.  Directors are exposed to the consequences of employees making mistakes and held personally accountable.

Examples of claims include:

Failure to comply with the law or regulations eg HSE breaches

Trading whilst insolvent

Corporate manslaughter

Employment practices & HR issues

Accountancy issues

Why is D&O Insurance important?

If your senior leaders don’t have D&O Insurance and a claim is brought against them, they could lose their position as director. Civil proceedings against them can bring about costly legal expenses and awards for any damages, and in extreme cases, there might be criminal prosecution which could lead to fines and even imprisonment. 

The impact of Covid-19?

Covid-19 has presented a unique and complex set of challenges for businesses and their directors and officers. Due to the ever-changing rules and regulations over the last 18 months, your company’s handling of the crisis could come under scrutiny from customers, employees, regulators or shareholders.  Unfortunately, decisions they made during the pandemic whilst well-intended could lead to litigation.

Are your decision-makers protected with D&O Insurance? Please call or email to find out more.