The only type of insurance all companies with employees must have in place under UK law is an Employers’ Liability Insurance. It doesn’t matter if you employ staff only on a casual basis, you still need to make sure you protect your business against any claim brought by a current or former employee. Although not a legal requirement, there is a range of other insurance types available to you, all designed to cover a different aspect of your business.
Directors’ and officers’ liability insurance (also known as D&O) is one insurance type that you may want to look into. It’s a common misconception that D&O claims mainly occur in public companies. Moreover, even if your company has a limited liability status, the directors and officers are still personally liable for the decisions and actions they take. In this article, we cover some of the basics of the D&O insurance type and why your business may need one.
Why is D&O insurance important?
It is only right that the people running your company are properly protected. After all, they need to make important decisions all the time – sometimes with limited and imperfect information. Things may not always work out the way they intended and as a result, they can find themselves battling a lawsuit. We all make mistakes at work, but your managers are more likely to be put under scrutiny when things are not running smoothly, or your company has to break bad news to investors and other stakeholders.
Navigating uncertainty and risks in today’s rapidly changing business environment is not an easy task. Several things have added to this challenge such as the introduction of the GDPR and Data Protection Act in 2018 as well as the increased focus on climate change and sustainability. In particular, privacy issues and data breaches can easily lead to D&O litigation. Recent years have seen several high-profile cases where the failure to protect personal data has led to a public outcry such as the famous Facebook-Cambridge Analytica debacle.
What does D&O insurance cover?
D&O insurances usually cover all past, current and future directors and officers. The decisions made in a leadership position sometimes have far-reaching consequences and it is important to keep in mind that directors can be sued under “past liability”, that is, even after they have left the company. Lawsuits can be expensive, and one core purpose of the D&O insurance is to offer financial protection for your managers and help pay any legal defence costs.
Broadly speaking, claims against the directors can arise from many situations and decisions made such as misrepresentation of the company’s financial health, discrimination or unfair dismissals. These fall under the category of “wrongful acts”, which are separated from fraudulent, criminal or intentional non-compliant acts. Naturally, the latter types are not covered under a D&O policy.
Buying Directors and Officers Insurance
Like other insurances, D&O coverage can be tailored to suit your individual business needs. As today’s business environment has become more complex to manage, it’s important to evaluate what type of protection you have in place for the key people in your company. At Goodwille, we have over 20 years’ experience in working with companies of all sizes. We see insurances as an important element in making sure your business and its employees are properly protected and that is why we work with insurance brokers to get favourable rates for our clients. Read more about what types of business insurances we can help provide you, or get in touch to discuss your individual needs with us.