What Is Director’s and Officer’s Liability Insurance UK?

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This insurance can be used for various business types like private and public companies and for other companies that may require a board of directors, such as non-profit organisations or those involved in education services. For business organisations that operate as a corporate entity, directors and officers liability insurance is designed to protect the personal assets of key team members from claims that arise from alleged wrongdoing.

If a claim is brought, a director’s and officer’s policy will free individual company operatives from personal financial liability. The protection provided shields with employees’ personal assets and property, but their spouses will be covered under the policy.

Directors and officers of a company should act in the organisation’s best interests, but even with the purest of intentions, mistakes and errors can still occur. D&O insurance protects from management acts that result in negative or unfavourable consequences.

A D&O policy will protect managers personally and shield the company from financial losses should they have to pay a claim on behalf of its employees. In addition, the insurance coverage extends beyond current staff members and will provide protection for past and future directors, officers, and key managers.

What do directors and officers insurance cover?

An insurance claim against a company can be brought by all types of claimants, from vendors to suppliers, to other employees. Unlawful acts, or acts of alleged wrongdoing, can frequently result in lengthy court proceedings with high fees and costly settlements. D&O insurance will cover the cost of defending a claim.

Investigations from examiners or legislative offices can result in claims being brought for a number of reasons. For example, if a director or officer of the company is suspected of operating outside of their scope of responsibility, civil, regulatory, or criminal claims can be brought.

D&O coverage protects from claims related to issues such as:

  • Breach of duty
  • Neglect
  • Breach of trust
  • Wrongful trading
  • Neglect
  • Errors
  • Misleading statements

Even with D&O coverage in place, there will be no protection against any actual wrongdoing. Intentional fraudulent activity, such as dishonestly, bribery or illegal business activity, will not be covered under a D&O policy. Insurance will not cover the cost of any legitimate claims, fines, or penalties, brought by official offices or regulatory agencies.

As claims are brought frequently against organisations, officers and directors will often expect that the company provides D&O insurance to protect them personally from any claims. Therefore, for many companies, having D&O insurance, though not required by law, is an essential part of risk management.

Are directors and officers insurance tax-deductible?

The cost of premiums for director’s and officer’s insurance is tax-deductible, which is helpful for companies that are concerned with expense management. In addition, according to government guidelines, policy premiums can be deducted if the following applies:

  • If the insurance provided protection for one or more employees against specific qualifying liabilities or costs arising from claims
  • Cover will apply to an employer where losses arise from meeting any qualifying liability of one of their employees

Provided these rules are met, the policy payments for D&O insurance will be tax-deductible. However, this may be subject to certain exclusions contained in the policy, so stipulations should be checked thoroughly for any restrictions or requirements.

Certain claim types may be excluded from the policy or combined in a single lawsuit, and the insured company may be required to defend all claims.  Therefore, especially in the case of smaller or medium corporations, it is wise to ensure that the D&O policy is adequate and any deductible payments are financially manageable.

How much does the director’s and officer’s insurance cost?

Many factors will affect the policy pricing of director’s and officer’s insurance. For example, the type and nature of the business, the number of employees covered, and the industry will all impact the cost of insurance premiums.

Policies can be affected by the age and experience of directors, or the companies length of time in business and the organisation’s financial strength. The level of perceived risk and any previous claims made under a D&O policy will also be taken into consideration.

For smaller companies, the cost of an annual policy can cost around £500, but as the risk of liability and exposure to potential claims increases, this number will rise. For corporations seeking to protect key employees, any director’s and officer’s insurance coverage should have adequate policy limits to shield company members financially.

Using a quote comparison service like the one available at NimbleFins can help to assess the benefits of multiple policies from different insurers. Viewing policies side-by-side makes it easy to compare premiums and any conditions or exclusions. For corporations that require a D&O policy but are conscious of expense, this can be an excellent way to determine the provider and policy which provides the highest value.

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