February 17th, 2023

Best ways to understand Directors and Officers Insurance to ensure cover for wrongful claims

Directors and Officers Insurance

In the business world, the positions of directors and officers arguably assume the most responsibility and accountability. With this level of seniority and responsibility comes a lot of liability for others within a business. Furthermore, company regulations are getting increasingly tighter and the levels of scrutiny on people in these positions is growing. It is important to ensure that your directors and officers are covered in case they receive allegations of acting wrongfully.

Directors & Officers Insurance Explained

D&O Insurance policies provide cover for the compensation claims made against senior management or directors, and financial protection from allegations that may come as a result of fulfilling regular duties within their official capacities. Claims of wrongful acts are not uncommon, and the costs associated with cases continue to increase, so it is advisable to make sure that you are shielded from them.

Why you need Directors and Officers Insurance?

As mentioned previously, company directors and officers are in a position of great responsibility and accountability. Such positions require that they act in the best interests of the company and, also, its stakeholders. Therefore,  this puts them in a position of significant liability, if allegations of wrongful acts are brought against them, despite their careful decision making or best intentions.

One of the main reasons that you need Directors and Officers Insurance is the financial protection it provides. If a claim is made against you and you are not covered, you may find yourself personally liable for the costs related to defending yourself  in the event of legal proceedings and settlements or damages.

Also, the pool of potential claimants has increased in recent times. For example, more employees and consumers are aware of their rights and therefore feel more empowered to sue if they feel that they are the victim of perceived wrongful acts. Regulators are also becoming more proactive and thorough in their investigations too. With claimants increasing, directors and officers are more at risk of receiving allegations of wrongdoing.

Another reason to have this insurance in place is that it provides solid governance foundations for a company. It will enable a company to attract strong talent as there is a safety net for its directors and officers to make decisions in the best interest of the company. They will be able to act without fear of the financial repercussions that may stem from a later challenge. Further still, it shows potential recruits and stakeholders that it values personnel and responsibilities.

What does the insurance cover?

Directors and Officers insurance can provide coverage for a broad range of potential claims, from the likes of discrimination and harassment to financial mismanagement. Typically, when allegations of wrongful acts are made, investigations will take place to determine the validity of the claims. This process can result in the accused having to pay any damages or a settlement in addition to expensive legal defence costs. As such, directors and officers are in a position where they could incur huge financial loss in the event of allegations of wrongdoing made against them.

The insurance usually covers claims brought to directors and officers by the likes of employees, shareholders or investors, regulators and creditors. Depending on your specific policy, you may be able get cover for defence costs which result from criminal and regulatory investigations into your company in cases where no wrongdoing has been alleged against an officer or director.

 What is not covered under D&O Insurance?

However, it is important to note that this type of insurance does not provide cover for claims against an organisation. Instead it just covers claims resulting from allegations made against individuals for acts of wrongdoing. What’s more, the insurance does not provide cover for illegal acts. Examples include the likes of embezzlement or fraud.

Please note, that specific coverage and terms of any particular Directors and Officers insurance policy will depend on the insurance company that is providing the policy and the wording used within it.

How Goodwille Can Help You with Directors and Officers Insurance…

To summarise, having D&O Insurance is becoming increasingly important to companies. It provides financial protection, against claims of wrongful acts, to your most senior staff. Having the insurance allows the company to be perceived in a more attractive and responsible light by stakeholders and potential recruits.

If you would like to reach out to us to better understand, and get assistance on how to get Directors and Officers Insurance (or any other governance matters ), then please contact our Head of Governance, Philip McCarron. Further still, if you would like assistance in setting up a UK entity please feel free to explore our website further or get in touch with our Marketing Manager James Service.