What is D&O Insurance
- Sam Cornelius
- Sep 26, 2021
- 2 min read
Updated: Oct 9, 2021
Let's start with the fundamentals - what is D&O insurance and how does it work?
What is D&O Insurance?
Directors and Officers (D&O) insurance is a specialist policy sold to private and publicly traded companies across the globe. In short, a D&O policy serves to indemnify the directors and officers of a company against allegations of wrongdoing or mismanagement in their capacity as a director.
D&O insurance is also often referred to as 'management liability' or 'executive risk' insurance, although when broken down granularly these can mean different things depending on the provider (management liability is more often 'packaged' for example) it is enough to understand at their core these are all the same product.
How does it work?
D&O policies have a somewhat unique structure compared to traditional insurance policies as cover is split into what is known as 'sides'. Each side is essentially a new section of cover which indemnifies a different party.
Most commonly, there are (up to) three sides.
Side A cover indemnified the director(s) personally. Directors are often personally liable for wrongdoings, meaning their personal assets and possessions can be used to compensate claimants if they are found to liable. Whilst the company may indemnify the director against claim awards themselves, this can be costly and is not always an option in certain circumstances.
Side B cover indemnifies the company in the event they are able and willing to provide indemnity to the individual director(s) accused of wrongdoing. This cover will reimburse those insured costs up to the limit of indemnity.
Side C cover is also referred to as entity coverage, and offers indemnification against securities claims and shareholder/member actions. Securities claims are a rising source of claims in the UK, and one of the largest causes of loss especially in the US markets. They can be quite complex, so do check out the 'further information' at the bottom for some interesting links.
There are several additional coverages that can commonly be purchased with a D&O policy. These include:
Pension Trustee Liability
Employment Practices Liability
Commercial Crime/Employee Fiduciary
D&O policies are often written on a "claims made" basis (with an extended reporting period in some cases) and can be commonly found offered on either an "Any One Loss" or "Aggregate" limits.
What does it cover?
Most D&O policies will cover things such as:
Defence and investigation costs (solicitors fees etc.)
Shareholder actions (securities claims)
Reporting errors
Alleged breach of Health and Safety regulations
Alleged breach of directors fiduciary duties (see my post on these here)
What are some common exclusions?
Commonly, the below claims will not be covered under a D&O policy
Bodily Injury or Property Damage (except corporate manslaughter for some policies)
Insured vs Insured
Intentional illegal acts or omissions
Fraud
Punitive Fines & Penalties
Further Information:
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