Directors and Officers Insurance
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What is Directors and Officers Insurance?
Directors and Officers Insurance, also known as D&O Insurance, provides protection for people in the company who have positions of authority. Most people believe a business’s public liability and other insurance coverage protects people in upper management positions. However, the truth is these forms of insurance simply do not provide protection for these individuals. These forms of insurance protect the company, but not the individuals within the company.
D&O insurance provides financial protection to people in authority within a company. The coverage pays for the cost of legal suits made against the individual.
Why Does My Company Need D&O Insurance?
With the level of increasing oversite by outside organizations and other threats, upper management faces the danger of personal financial ruin due to the claims from clients and customers who are unhappy with the service or product they’ve received, etc. In addition, there are more laws these days that govern how companies and their directors act. Some claims may be legitimate, while others are frivolous. The types of legal proceedings are many, which threaten those in senior positions.
D&O insurance is essential in order to provide the right level of protection for those in authority. Not only that, but D&O insurance may also offer protection to the spouses of directors, officers, etc. should they face a lawsuit.
The costs of the defending against litigation, facing legal extensive legal costs, etc. are covered; if not, companies’ upper management face the possibility horrific personal financial losses.
Who Can Sue Directors and Officers?
Here’s a list (not exhaustive) of those who could sue those in senior positions within a company:
- Other directors, officers and upper managers
- Regulatory organizations
- Government departments
What Does D&O Insurance Cover?
The type of coverage will vary from insurer to insurer, but directors and officers insurance generally covers:
- Actions by liquidators
- Defamation claims
- Wrongful trading
- Legal action can also be taken if creditors have been incorrection paid
- Failure to follow regulations or laws
- Corporate manslaughter
- Mergers & acquisitions
- Inadequate or inaccurate disclosures
- Reporting errors
- Decisions by a company officer, which exceed their granted authority
- Investors and/or shareholders may blame directors for losses on dividends
- HSE (Health and Safety Executive) investigations into accidents when negligence may be an issue
- Investigations of fraud
- Employment disputes (including wrongful dismissal, etc.)
- Antidiscrimination suits (including sexual, age and racial discrimination)
- Unpaid taxes (if the company is facing bankruptcy)
- HR Issues
- And more
As you can see, the list of legal threats facing senior managers is quite long—our list is not exhaustive. The fact is that mistakes can happen. Directors and officers coverage protects against these issues.
This type of insurance offers protection even in cases where legal proceedings are unfounded. The costs of the defence, etc. are covered; if not, companies face and their upper management face horrific losses.
Who is an Officer in the Company?
The number and types of officers a company has will depend on the company’s Articles of Association; officers can include any of the following positions:
- Board of Directors: direct the company’s affairs & business; have the legal responsibility for actions of the company, the company officers, employees, etc.
- Chief Executive Officer (CEO) or President: the person with the most responsibility over the company’s activities, signs off on contracts and other legal actions, they also report to the board of directors.
- Chief Operating Officer (COO): manages the company’s day-to-day operations; they usually report directly to the CEO.
- Chief Financial Officer (CFO) or Treasurer: in charge for most of the company’s financial matters.
- Secretary (of the business): maintains company’s records, documents and minutes from shareholders meetings.
Those in other positions of authority within the company can also be legally responsible for varies business activities, including those in HR, senior managers, etc.
What is Not Covered Under Directors and Officers Insurance?
D&O insurance does not protect the entire company against claims. It only protects directors, officers, and other people in upper management positions.
In addition, this type of coverage will not protect against the following:
- Intentional non-compliant acts
- Property damage and bodily harm (except for corp. manslaughter)
- Legal action already taken when insurance policy starts
- Claims made under a previous insurance policy or by other insurance
- Illegal remuneration/personal profit
How Much is Director and Officer Insurance?
The price of the D&O premium will vary from insurer to insurer. You’ll find there are three main types of directors and officers insurance coverage. The type you choose will determine the price of your premium.
Standard policies are structured in “sides,” which offer different types and levels of protection:
Side A: protects the personal assets of individual directors and officers, but only when the company has not bene found legally or financially able to pay for indemnification.
Side B: reimburse private or public company when it grants indemnification and pays legal expenses for directors and/or officers.
Side C: covers the public company (the entity, not the individuals in the company) only for securities claims.
You’ll find that premiums can be paid monthly or annually, though making an annual payment usually saves the company money. These types of policies usually also include a deductible. Premiums will be higher based on the level of risk insurers perceive your company to present. Premiums are also based on the number of employees and operational costs.
Remember that D&O insurance policies and premiums will vary from insurer to insurer. Comparison shopping can help you find the right policy at a price you can afford.
Directors and officers insurance coverage is often thought to be expensive; however, the investment is very affordable for businesses of all sizes. When considering the price of D&O insurance, remember the cost of the premium is well worth the protection offered to those in senior positions within the company.
Helpful Links: Insurance Associations
ABI – Association of British Insurers – The Association of British Insurers is the leading trade association for insurers and providers of long term savings. … need to contact their insurer for a Green Card which they will need to carry on them if they wish to drive their vehicle in the EU.
BIBA – British Insurance Brokers’ Association – The British Insurance Brokers’ Association (BIBA) is the UK ‘s leading general insurance organisation.
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