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What is D&O Insurance And Why Is It So Important?

The day-to-day life of a company senior manager or director is one of making decisions, sometimes tough and complex ones, which may have a significant impact on the future of the company and any of its stakeholders. They must do so amidst ever-increasing amounts of legislation, regulation, opinion and best practice in corporate governance and risk management. And, because they are only human, they can make mistakes – mistakes that can see them personally liable for any losses suffered by the company or any third parties.

Directors & Officers Liability (D&O) insurance is an increasingly important element in corporate risk management, offering liability cover that protects company managers and directors from claims arising from decisions and actions they have taken as part of their contracted duties. While multinational and large organisations, which have the highest risk of attracting D&O claims, regularly protect their managers and directors with D&O insurance, those running small-to-medium-sized enterprises are arguably just as exposed and yet few have taken out such cover. It is estimated that less than a third of SMEs in the UK have D&O insurance.

What does D&O insurance cover?

Directors & Officers Liability (D&O) insurance covers the cost of any compensation claims for alleged wrongful acts committed by a company’s directors or key managers (officers). Wrongful acts may include:

  • Breaches of duty or trust
  • Negligence
  • Failure to comply with regulations or laws
  • Inaccurate or inadequate disclosure
  • Reporting errors (e.g. in company accounts)
  • Misrepresentation or misleading statements
  • Shareholder actions, such as wrongful trading
  • The operation or administration of a pension or employee benefit scheme
  • Defamation
  • Pollution

Claims may be brought by regulators, such as the Health and Safety Executive, the Office of Fair Trading and the Inland Revenue, shareholders, investors or creditors. Additional employment practices liability insurance will cover employee discrimination claims, such as unfair dismissal or harassment.

What doesn’t D&O insurance cover?

D&O insurance does not cover claims made against an organisation as a whole. Equally, while it covers claims against individuals directors or officers, there are a number of important exclusions:

  • Fraud
  • Intentional non-compliant acts
  • Illegal remuneration or personal profit
  • Property damage and bodily harm (except Corporate Manslaughter)

Why is D&O insurance cover important?

Making difficult and, at times, risky business decisions is part and parcel of a company director or manager’s life. D&O insurance provides the reassurance and safety net required to allow them to continue to do so in a manageable and transparent way, providing financial security if and when they face a costly claim against them.

Having D&O cover is even more crucial in the light of the Financial Services Authority’s clear intention to make more directors and officers of companies personally liable. Margaret Cole, Director of Enforcement at the FSA, has stated that “We’ve made a strategic decision to investigate more individuals,” said.”

To find out more about how Edward Hayes LLP can help with all matters relating to Directors and Officers’ Liability contact us now on 01243 781431 (during office hours) or 0800 085 9684 out of hours or via email on

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