D&O insurance 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.
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 their salary if assets such as their home, cars and savings do not meet their liabilities.
There are many and varied groups of people or bodies who can bring actions, including:
Even if allegations are unfounded defence costs can be crippling, especially to smaller companies. Other legal costs, such as attendance at investigations into the affairs of the company, should not be underestimated.