Why do you need Directors and Officers Insurance?
We live in a world that is increasingly becoming more and more litigious. If you don’t have Directors and Officers Insurance, also known as D&O Insurance, it may be something worth investing in to protect your senior management in the event that a claim is made against them.
What is D&O Insurance?
Your directors, partners, officers, and key managers are likely to have more responsibilities due to the nature of their role. While their work can be exciting and fulfilling, it does put them at a higher risk.
D&O Insurance covers the cost of any compensation claims made against your directors, officers, or high-ranking management for alleged wrongful acts.
Claims could be made by disgruntled employees, clients, investors, stakeholders, and even regulators and could involve civil, criminal, or regulatory proceedings. A D&O policy can also cover any legal costs that arise for directors in defending their case.
What is a wrongful act?
According to the Association of British Insurers (ABI), wrongful acts include:
- Breach of trust
- Breach of duty
- Neglect
- Error
- Misleading statements
- Wrongful trading
Mistakes sometimes happen. However, even if a director, officer, or key manager acted in good faith and didn’t intend on committing a wrongful act, this could still trigger a claim.
Why is D&O Insurance important?
If your senior leaders don’t have D&O Insurance and a claim is brought against them, they could lose their position as director. Civil proceedings against them can bring about costly legal expenses and awards for any damages, and in extreme cases, there might be criminal prosecution which could lead to fines and even imprisonment.