Directors and Officers insurance – also known as D&O insurance – is specialist cover for any claims made against your business’s directors and officers.
What Does Directors and Officers Insurance Cover?
D&O insurance covers legal fees, and any compensation that may be due, for claims made against directors and officers for alleged wrongful acts.
This might include allegations of:
- Neglect
- Error
- Trading offences
- Misleading statements
- Breach of trust or duty
- Data breaches
Real World Examples of D&O Claims
Below are some examples of the sort of situations that might result in allegations of wrongdoing, which would necessitate D&O insurance cover for legal fees and compensation:
Unfair dismissal
An employee may disagree with a dismissal, and may take legal action against the business as a result. In 2016, the CEO of the NYTimes faced a multimillion-dollar class action lawsuit from a number of employees for alleged discriminatory hiring practices.
Breach of trust
If a business’s shareholders or investors believe that a director or officer is not being transparent, they may take legal action to recover their investment. In 2016, the GoPro management faced legal action from their investors, who alleged that the company was misleading them about certain sales figures.
Misappropriation of funds
An unspecified nonprofit organisation received a large donation from a private donor. This donor expected the nonprofit to use the funds to aid impoverished children. Instead, they used the investment to expand their premises. The donor took legal action against the nonprofit’s director and trustees for misappropriation of funds.
Fraud
For years, Enron’s directors and officers engaged in fraudulent accounting practices, which ultimately bankrupted the company. Following extensive lawsuits against the company’s executives, shareholders ultimately received over $7 billion in settlements.
Do I Need D&O Insurance?
If your business has directors and officers, then they may be held personally liable for any alleged wrongdoing. As we have seen, these allegations can come from a range of sources, including shareholders, investors, regulators, employees, and other third parties.
Plus, many D&O insurance claims are for alleged wrongful acts. Even if the director or officer feels that they have acted honestly, and in their company’s best interests, they may still face legal action.
D&O insurance can cover all of the legal fees associated with these claims, along with any compensation that might be due. Without D&O insurance, your business’s directors and officers may be personally liable for covering these expenses. This could compromise their position in the company, which may jeopardise your business as a whole.
What is Not Covered By a D&O Insurance Policy?
Some D&O insurance policies may include cover for employment practices liability as standard. Though some insurers will offer it as an optional extra. This is dedicated cover for claims from your employees for discrimination, such as sexual harassment, unfair dismissal, or failure to promote.
D&O insurance will cover claims made against individual directors and officers for alleged wrongful acts. It will not cover claims made against your business as a whole. For this, you will need additional forms of business insurance, such as employer’s liability cover, public liability cover, or product liability cover.
Dedicated Directors & Officers Insurance Services From James Hallam
James Hallam is an independent Lloyd’s broker with a dedicated team of experienced insurance professionals who care about protecting your business.
We can advise you on your business insurance requirements, and help you find a D&O insurance solution that gives you all the cover you need at the best price.
Learn more about our professional risks insurance services.