Why You May Need Directors And Officers Insurance

Your business has a limited liability when it comes to claims. This is determined by the shares or guarantees it owns. In contrast, the personal liability of a director / officer of the company is unlimited. If a claim is made against them, their personal assets are at risk. Also, it is a common misconception that the director can rely on indemnity provided by their company.

With a rise in the number of claims being made personally against directors for decisions made during the working week, directors and officers of the company need to carefully consider the protection they provide themselves.

Limited Protection

The director’s company can provide some protection against claims but this is limited and is often only provided by the employer when they are obliged to. Many company terms of contract stipulate circumstances when the director or office is not protected by the company.

These may include:

• The company has insufficient funds. Claims are often made against directors when investors have lost out, when the company has become insolvent.
• Articles of association allow for the company to withhold protection.
• The Companies Acts states that it is unable to render support to the director.

Even if the company does provide indemnity to the director for a liability, there is a question mark over who will meet the costs if the company loses.

The Right Protection

Directors and Officers Liability insurance provides protection to those in senior management positions within a company for the cost to defend against liability claims and prosecutions against them in matters relating to their work. These policies also include the representation costs in investigations of the director by authorities.

Even though it is normally large corporate entities that normally buy this type of insurance, small businesses should also consider buying Director and Office Insurance. In fact, those in smaller companies are more at risk as there is an increased third party awareness of their exact duties.

With the possibility of claims against directors and officers from any direction; can you afford not to purchase the right insurance?

Have you had a personal liability claim made against you? How did you protect yourself?

Let us know in the comments below.