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What Is Director & Officer Insurance?

Director & Officer Liability Insurance – known also as D&O insurance – is an insurance that helps businesses cover the costs of claims brought against them as a result of alleged wrongful acts and decisions made by its’ directors and key managers.

Alleged wrongful acts that can be brought against the business can include:

  • Neglect
  • Errors in decision making
  • Breaches of trust and of duty
  • Misleading statements – particularly when it comes to financial advice regarding mergers and acquisitions
  • Wrongful trading

Who Could Bring Action Against Me?

There are many groups who could bring action against your directors or executives in reaction to decisions made at board or executive level, some examples include:

  • Shareholders – following a poor business decision that has lead to financial losses, shareholders may bring charges of misleading investors
  • Creditors – could bring allegations of wrongful trading against you should they lose money as a result of advice you have provided
  • Employees – could potentially bring action against you as a result of a breach of employment law
  • Competitors and Customers – could bring allegations of anti-competitive practices against you
  • Government Departments – govt departments may get involved to investigate alleged breaches of laws and policies, including the Health & Safety At Work Act and the Companies Act
  • The police – usually to investigate incidents caused by what is known as ‘gross negligence murder’ if an employee should lose their life while under your employment

How Can D&O Insurance Cover Me?

Managers and directors can make mistakes when it comes to complex decisions, and D&O insurance helps to cover the cost of defensive proceedings and payments of compensation as a result of claims brought against individuals. This can range from recouping lost earnings or bring criminal proceedings against the individual responsible if their actions have lead to significant financial losses.

This is different from a claim brought against the company as a whole as it focuses on key people in the process – including managers – and thus holds individuals accountable for their mistakes rather than the company as a whole.

What Clauses Are There In D&O Insurance?

There are three ‘sides’ or insurance clauses when it comes to director and officer insurance policies:

  • Side A: Non-Indemnified – provides cover for individual directors and officers when they are not indemnified by the corporation.
  • Side B: Indemnified – provides coverage for the corporation as a whole when the directors and officers are indemnified, helps businesses to recoup costs paid on behalf of managers and officers in order to protect them.
  • Side C: Entity securities coverage – provides coverage to the corporation, usually larger businesses, against securities claims (tradable financial assets) brought against it.

As well as the personal nature of such claims, location can also play a part, especially when it comes to businesses dealing with clients in different countries around the world. Businesses must be knowledgeable about the markets they are dealing with, but also about the jurisdictions in the country in which any deals may take place, otherwise they may find themselves at risk of prosecution from multiple sides.

Your level of cover will change depending on what kind of business you are in, it’s best to speak with your broker to ensure you are fully protected against every possible scenario.

If you’re looking for a better deal on your director & officer insurance, let Quotiva do the searching for you. Fill out a few details about your business and we’ll search our extensive broker network to find you a quote to suit you and your business.


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