Business

What Is D&O Liability?

What Is Directors & Officers Liability (D&O) Insurance?

It is a form of insurance that protects directors, officers and other people with managerial responsibility from legal and other costs they may become personally liable to pay as a result of litigation.

Why Do I Need D&O Insurance?

Being a company director is a wonderful thing but it is a position of great responsibility which involves running the affairs of the company. Legislation over the last decade has made the position of directors and senior managers more onerous in that it has increased their accountability for their actions or inactions.

There are many laws now that regulate companies and their directors. In addition, ‘no win, no fee’ schemes have increased the potential for claims to be made against a company and its senior management. See our case studies below to understand the types of claims being made.

It is frequently misunderstood that a company having limited liability status protects its directors and senior managers from personal liability. It does not. In reality, a director’s liability is potentially unlimited even to the extent of a charge on his salary if assets such as his home, cars and savings do not meet his liabilities.

Who Can Sue Directors And Senior Management?

There are many and varied groups of people or bodies who can bring actions, including:

  • Employees
  • Customers
  • Competitors
  • Suppliers
  • Government departments or organisations, e.g. for health & safety, local authorities, HM Revenue & Customs, agencies for the protection of the environment and many more
  • Contractors
  • Creditors
  • Regulatory bodies

What Kinds Of Actions Might Senior Management Be Personally Liable?

  • Employment disputes, including wrongful, unfair or constructive dismissal, harassment and wrongful discipline
  • Involuntary, constructive or gross negligence, manslaughter and far reaching health and safety legislation
  • Anti-discrimination regulations, including sexual, racial and age discrimination
  • Wrongful trading i.e. trading in the knowledge the business is or will become insolvent
  • Unpaid taxes where the company has become insolvent

Even if allegations are unfounded defence costs can be crippling, especially to smaller companies. Other legal costs, such as attending at investigations into the affairs of the company, should not be underestimated. A senior manager may be held personally liable for the actions or inactions of others.

D&O For Private Companies

Chubb has two Directors & Officers Liability products. In addition to Chubb Elite V, we also offer Elite Plus Management & Corporate Liability. This is aimed at any private limited company with less than £500 million turnover.