What is Directors and Officers Insurance?
Running your own show can be exciting and rewarding, personally and financially, but it’s not without its risks. There’s lots that can go wrong and if it does the buck usually stops with you and your fellow owners and directors – figuratively and literally.
Should a supplier, customer or employee decide to take legal action against you personally, you could find yourself in for a protracted, stressful and expensive battle to protect your personal assets and the security you’ve worked hard to build..
Directors and officers (D&O) insurance, known as management liability insurance in the context of small and medium-sized businesses, is recommended by small business specialists and advisers who’ve seen small business owners struggle to recover from litigation they’ve failed to prepare for financially.
And it’s not just directors of commercial enterprises that can end up in hot water – directors of not-for-profit organisations may find themselves similarly exposed, should something go wrong.
What’s covered
A D&O policy can cover you for liabilities and legal costs associated with defending claims against you made by third parties, for allegedly wrongful acts you’ve committed in your capacity as a director or officer.
Available from most major insurers, management liability cover can provide protection for executive directors, non-executive directors, company secretaries and other members of your senior management team for acts they perform, or fail to perform, while working in those roles.
If, for example, a manager responsible for workplace health and safety is alleged to have failed to mitigate risks adequately and an employee who’s incurred an injury decides to sue them, the D&O insurer may cover defence costs and damages.
What’s not covered
What D&O insurance won’t cover are the costs associated with any act, omission or issue that arose before your current policy was taken out and which you knew, or should have known, was likely to trigger a claim.
Other typical exclusions include fraud, illegal and personal profits and gains, fines and penalties that can’t legally be insured against.
These policies do not cover your own fraud, but they may cover you for loss suffered as a result of fraudulent acts by some other person.
Mitigating the risk
Management liability cover can be complex and working with an experienced broker can help you find a policy that meets your needs, according to Steadfast broker technical manager Michael White.
“Analysing the size, structure and scope of your organisation along with its circumstances and risk profile will help determine the level of cover that’s appropriate for you and your leadership team,” White says.
“Protecting them and yourself from some of the risks associated with business leadership in today’s times can provide the peace of mind that allows people to do their best work.”
Cover when it counts
If you’re the director of a small business or considering becoming one, it’s a good time to explore the benefits of management liability insurance, or to review your level of cover to see if it remains right for your circumstances. Contact us today to discuss your policy options.
