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Do I Need Directors and Officers Insurance?

Do I Need Directors and Officers Insurance?

For those that have formed a corporation, whether public, private, or non-profit, directors and officers insurance will be required to protect individuals against personal losses from claims brought for alleged wrongful acts. Directors and officers insurance provides coverage for legal fees, costs, and settlements associated with such claims made against these individuals.

Lawsuits can come from many quarters, and claims may be brought by vendors, customers, employees, or other parties for wrongful acts or mismanagement of the company. As claims are levelled at the corporate directors personally, many will demand that D&O insurance is in place.

Claims can be brought for many reasons but are often for alleged financial abuse or misuse of company funds. Having a D&O policy in place will help defend against these claims and protect against claims for workplace law violations and theft of intellectual property.

D&O insurance effectively holds harmless company officers for any losses due to their role in the business. However, it does not protect against losses that have been caused by intentional wrongdoing or compensate for regulatory penalties or fines.

How Many Directors and Officers Insurance do I need?

According to insurance experts NimbleFins, policies for directors and officers insurance start at less than £500 per year. However, the premium and level of coverage required can depend on several factors. When setting up a policy, providers will need to take into account things such as:

  • Size of the company
  • Number of employees
  • Financial performance
  • Industry
  • Prior claims
  • Background of officers and directors

As the risk and financial liability increases, so too will the director’s and officer’s insurance costs. Prices can also be influenced by the type of industry that the company operates in. There are also several exclusions commonly seen in D&O policies. To acquire the appropriate level of coverage, it may be worth seeking advice from an insurance professional.

Coverage is designed to protect the personal assets of directors and officers of the company but does not extend to losses caused by acts of neglect, or any kind of breach of trust. It will also not protect against illegal acts such as taking bribes or engaging in intentional fraudulent activity.

Is Director’s and Officer’s insurance necessary?

While having D&O insurance is not compulsory, there are many reasons why organizations would want to have it in place. Claims can be leveraged from many different sources, ranging from customers to employees. In addition, this insurance will protect the personal assets of key managers, directors, officers, and supervisors of the business.

It provides different protection from that of limited liability insurance or other indemnities, and as claims can run into hundreds of thousands of pounds, D&O insurance is a worthwhile investment. Any company with a corporate board or an advisory committee should have D&O insurance to protect its members.

While larger companies tend to have a D&O policy in place as standard, smaller businesses can also benefit from obtaining coverage. Claims can be brought against any organization, large or small, and having a D&O policy will help to cover the expense of defending claims in court.

Why do I need Directors and Officers Insurance?

As the number of personal claims is increasing, providing protection for the key members of a company is becoming a necessity. The chance of claims made by employees is higher than ever before, and companies need to guard against investigations from regulators or governing bodies.

Without D&O insurance, key company leaders are financially and personally exposed to risk. This can leave individuals in a position where they are unable to protect themselves against things like:

  • Unfair dismissal
  • Civil proceedings 
  • Fines
  • Damage settlements
  • Criminal prosecution
  • Imprisonment 

Directors and officers insurance may also cover claims made by investors, shareholders, or regulatory agencies or for lawsuits brought by creditors. Protection can also be provided for legislation breaches and against some insolvency procedures.

D&O claims, by their nature, can be complex, and legal proceedings may go on for years. Along with the stress this causes, the cost of mounting a legal defence can rise continuously until the claim is resolved. Having D&O insurance will cover the legal expenses amassed over the long term.

Companies that wish to expand or who are seeking investment may find that D&O insurance is required. Having a D&O policy in place reduces the potential exposure to risks, and investors tend to favour companies that have coverage in place. In addition, some start-up investors will require new companies to invest in a D&O policy within a set time period to protect against claims and lawsuits.

Having a D&O policy can also mean attracting the best employees. Experienced directors and company managers will lean towards businesses that provide them with some assurance of personal protection from claims.

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