Imagine you have the opportunity to invest £100,000 for your company, with a 70% chance of providing a 20% return within five years. Do you decide to go for it? Now consider whether your decision would be different if you could be held personally liable for making the wrong decision; your home and other assets are on the line. Do you have the same approach to risk?
This simplified scenario demonstrates the importance of Directors & Officers (D&O) insurance.
D&O insurance gives directors and officers the confidence to know there is support towards compensation, defending claims or prosecution costs if something goes wrong.
It’s not a ‘get out of jail free’ card to excuse negligent behaviour, but it does provide valuable financial support in difficult situations.
Five key things you need to know about D&O insurance.
- Claims can be brought by a variety of company stakeholders
It’s not just shareholders who may bring a claim against senior staff. Employees, bondholders, lenders, customers, consumer bodies, suppliers and competitors could all have legal standing to bring a claim. - D&O insurance is not compulsory
The law does not require you to hold D&O insurance, but in practice, companies may find it very difficult to recruit top talent without having a policy in place. Some qualified candidates see insurance as essential protection and may ask to see the policy before entering an employment contract.
- Operating without D&O insurance can cause undue risk aversion
Failing to have D&O insurance in place may not only harm recruitment; it also impedes the ability of senior executives to make decisions on behalf of the company. They are likely to be more risk-averse when their own assets are under threat.
- Professional indemnity insurance and D&O cover different types of risk
There is often confusion about whether professional indemnity and D&O are the same thing. They are not.
Professional indemnity relates to situations where it is claimed that a service or advice has not been delivered to a competent standard. D&O insurance relates to the management of a company and concerns risk connected to governance and oversight.
- The law says some areas of liability must be excluded
Providing cover for every corporate misdemeanour would arguably create a moral hazard in which executives would feel immune from the consequences of their actions. This is why English law says insurance cannot cover some types of penalties and fines. However, D&O insurance can pay for costs such as legal fees in defending a criminal charge.
If you would like to find out more about Directors and Officers insurance, or for a no-obligation quote, get in touch with our team today. Call us on 01234 268818 or complete our enquiry form and we’ll be in touch as soon as possible.
