Exclusions differ from one insurer to another, and checking them is part of our work before we recommend a policy to you.
After a change of ownership the new owner finds that the previous director signed a contract with a related party on unfavourable terms, and starts proceedings to recover the loss for the company. The D&O policy covers the defence costs of the former director and any compensation, provided deliberate personal gain is not proven. What matters is that the policy also protects officers whose term has ended.
A regulatory authority opens proceedings against the company and, within them, against the responsible officer over reporting failures. Legal fees arise at once, months before any decision is made. D&O pays those costs as they fall due, which is the most common reason the policy is triggered at all.
An employee sues the company and the director personally over the way a dismissal was carried out, arguing that it was discriminatory. The case drags on, a lawyer is engaged and the judgment may include compensation for non-material damage. A policy with employment practices cover takes over the defence and the compensation awarded, up to the limit.
The examples are illustrative and show how the cover works in practice.
It is personal liability insurance for directors, supervisory board members, authorised representatives and other people in management, covering loss caused by their decisions and omissions in office. The policy is normally bought and paid for by the company, but the insured parties are the individuals. Cover includes both the compensation and the legal defence costs.
The Companies Act draws no distinction by size of company when it sets out the duty of care and the liability for loss, so the director of a small company answers on the same basis as one in a large group. The risk rises around a change of ownership, the entry of an investor, bank borrowing and financial difficulty. In those situations D&O is usually the first thing an investor asks for.
It is usual for the company to arrange and pay for one policy covering everyone in the governing bodies, because that is cheaper and simpler than individual policies. The decision to buy is taken by the competent body of the company in line with its founding act. A director can buy a personal policy, but that is rarer and as a rule more expensive.
D&O is written on a claims made basis, which means the claim has to be raised and reported for the first time during the policy period. Earlier acts are covered only if a retroactive date is agreed and the circumstances were not known to you at inception. An inaccurate statement about known circumstances is the most common reason a claim is declined, so we complete that proposal carefully with you.
Acts from your term of office stay covered only if a claim is reported while the policy is running or within an agreed extended reporting period. If the company does not renew the policy after you leave, and there is no such extension, you are left without protection. It is worth checking that clause before you step down, and we do it by comparing the wordings of several insurers.
Send us a short enquiry. We collect offers from every insurer that covers this risk and explain the differences before you sign anything.
