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Directors & Officers Insurance: 5 Common Questions

Directors & Officers Insurance: 5 Common Questions

Directors & Officers insurance is quickly becoming the most requested insurance policy we provide. Whilst we believe this is because more businesses are raising funds than ever before, but it’s also likely to be because of a surge in claims over the last 5 years.

Despite being quite a popular purchase, the level of understanding about what it can cover is still somewhat lacking. With that in mind, we’ll be providing answers to the five most pressing questions surrounding Directors & Officers Liability we receive.

What is Directors & Officers Liability Insurance and who does it protect? 

D&O policies provide financial protection in the event of individuals being held personally liable for civil, criminal or regulatory proceedings, while acting on behalf of their business. Generally these policies are offered as a ‘Management Liability’ package and offer protection to any past or present director, officer or senior decision maker. Typically policies extend to include subsidiaries of the parent company. 

Do I need D&O insurance?

While there is no legal requirement for businesses to purchase D&O policies, it’s rapidly becoming more popular with commercial entities. With markets in general becoming more litigious, allegations of wrongdoing are arising from many sources, most commonly; shareholders, regulators, competitors, customers and even employees. 

What are some claims examples?

These examples were collected from the Travelers Insurance Library of Claims:

An employee of a small private business convinced the board of directors that he was qualified to step into the role of president of the company, and was appointed. Under his leadership, the company’s financial position substantially weakened. On behalf of the company, a shareholder sued the board of directors alleging that they used poor judgment and did not act in the best interest of the company when they appointed the new president. The case eventually settled for $1.5 million and legal fees totaled $300,000. Total cost – $1,800,000

The vice president of a manufacturer determined that diversification into a different product line presented tremendous sales potential. Instead of presenting the opportunity to his company, the VP informed his brother, who then formed a new company to manufacture that product. On behalf of the company, a shareholder sued the VP alleging that he wrongfully took advantage of an opportunity belonging to the corporation. The suit eventually settled for $2.5 million.

How much D&O should I purchase?

The below offers a general guide based on market data and a typical business purchase. It is important however to consider your own circumstances and note that the limits below might not be substantial enough to cover your financial loss and defence costs. 

Turnover<£1m<£5m<£50m+£50m
D&O Limit£1m£2m£5m£10m

Please bear in mind that, if you’ve raised capital to fund your operations and you are still at an early stage, you should take into consideration your asset size and not your turnover. 

Is D&O Insurance expensive?

It’s difficult to say as it varies from business to business but, in comparison to legal defence costs, absolutely not! Prices start at around £150 for a £250k limit, which can usually be paid monthly by interest free instalments. Our most common price for £1m of cover sits somewhere between the £280 to £360 mark.

Contrary to popular belief, we only require very minimal information to be able to provide you with a quote, so if you have a minute spare please run through some brief details here.

If you have any further questions about D&O insurance or other policies your business may need, please contact us!