Why you need Directors and Officers Insurance…
Many businesses are facing difficult times due to higher interest rates and a stagnant economy, resulting in a significant increase in insolvencies. Unfortunately, this has also led to a rise in cases of fraud and other forms of misconduct, with experts predicting that the numbers will continue to grow.
According to law firm RPC1, the Insolvency Service launched 36% more investigations into alleged misconduct of insolvent companies last year compared to the previous year. The number of investigations increased from an average of 142 per month (April 21 - March 22) to 193 per month (April 22 - Dec 22). This increase in investigations is expected to result in a rise in claims under Directors and Officers insurance (D&O) to cover the expenses of investigations or penalties. This emphasises the significance of having D&O coverage in place for directors, partners, or officers of a company.
What is D&O?
In current society, businesses face greater risks of lawsuits and liabilities. The expenses associated with legal issues are also on the rise. As a result, more companies are choosing to D&O (Directors and Officers) policies to protect themselves. Without this cover, businesses may struggle to attract top-tier managerial talent due to the increased risks involved.
Common risks
D&O insurance covers various risk scenarios, such as breach of duty of care, breach of trust, defamation, health & safety failure, pollution, mismanagement of pension schemes, inaccurate disclosure, non-compliance with regulations or law, corporate manslaughter, creditor and competitor claims, and employment practices and HR issues. However, it does not cover fraudulent or criminal actions.
It's important to note that the insurance usually covers current, future, and past directors and officers for acts performed while in their position. Therefore, even if they are no longer in that role, they will still be covered if a claim is made during the policy period for alleged wrongdoing.
How does D&O work?
D&O reimburses defence costs incurred by company directors and officers in defending them against claims by shareholders or other third parties for alleged wrongdoing. As well as defence costs, it also covers monetary damages, settlements and awards resulting from the claims.
In other words, whether the case is upheld or not, D&O insurance can step in to cover the costs, whether they involve legal fees or compensation, protecting the individual manager’s personal assets. If the company itself is sued, the policy can also provide some coverage.
In today's litigious climate, we strongly recommend that all company directors and managers consider obtaining this type of coverage.
D&O insurance is an essential part of any business risk management strategy. Many limited companies already include it as a standard policy, as it can reimburse the company for any losses incurred as a result of a director's actions.
If you own a limited company, we suggest you consider getting Directors and Officers insurance (not applicable for sole traders). We would be more than happy to provide advice on the appropriate level of coverage based on your specific circumstances.
Our business is your protection, so to ensure you are protected against litigious claims and expensive legal costs, call 01992 703 300 or email insurance@nlig.co.uk
1 cityam.com: Fraud warning as insolvency surge sees more directors investigated for corporate misconduct