The short answer
Directors and officers liability insurance (D&O) protects executives and members of governing bodies against claims relating to their management decisions. This is a separate risk from that covered by business liability insurance. Review it when management, ownership or the scale of decisions changes, then read the provisions on insured persons, periods and limits carefully.
A different risk from business liability
Business liability insurance generally addresses harm caused to third parties by business activities: injury, property damage or the consequences of a service provided. D&O concerns a different situation: a shareholder, creditor, partner or the company itself challenges a management decision or omission by a director or officer. Insurers present this cover as specifically intended for members of the company's governing bodies.
When the question arises
- Arrival of investors or a new business partner
- Change of management or appointment of external directors
- Rapid growth, substantial financing or expansion abroad
- Restructuring, financial difficulties or a planned sale
- Directorships held in other companies
What to read in a quotation
Insured persons (current, former, future; subsidiaries), roles covered, territories, defence costs, limits and excesses. Pay particular attention to how cover operates over time: most of these contracts operate on the basis of claims made during the period, with rules for known prior circumstances.
A claim or known circumstance must be notified in accordance with the contract's procedures. Taking out insurance afterwards does not create cover for a dispute that is already known.
Prepare for the review
Gather the articles of association, details of the composition of governing bodies, recent accounts, roles held elsewhere and any past claims. These documents provide a clear basis for comparing quotations and choosing limits suited to your company's actual circumstances.
Frequently asked questions
Does a small company need D&O insurance?
Size alone does not determine the answer. What matters is who may challenge the decisions of directors and officers: investors, creditors and partners. Review the question whenever governance changes.
Does D&O cover circumstances predating the start of the insurance?
That depends on the clauses. Circumstances that are already known are generally not covered; other prior circumstances may be covered, subject to the terms. Read this section before signing.
What happens when a director or officer leaves the company?
Many contracts provide cover for former directors and officers for their past decisions, subject to conditions. Check this and keep the policy in force after departures.