Directors indemnity insurance, usually sold as directors and officers cover, protects individuals against personal liability for decisions taken in their role. It exists because company directors owe duties personally, and a company's own liability insurance answers for the company rather than for the people running it.
Why directors have personal exposure
Directors owe statutory duties to the company, and in some circumstances to creditors, employees and regulators. Claims can be brought by shareholders, by a liquidator, by employees or by a regulator, and the company cannot always indemnify a director for them. The exposure is personal and it does not stop when the director resigns.
What the cover answers for
Defence costs above all, which are the immediate and frequently ruinous part. Then settlements and awards where the law allows them to be insured. Wordings usually extend to investigations, to regulatory interviews, and to a period after a director leaves. Deliberate dishonesty is always excluded.
Who needs it beyond large companies
Directors of small owner managed companies, trustees of charities, and the volunteers who run resident management and share of freehold companies. In each case ordinary people carry legal duties for little or no reward, and the cover is what makes those roles reasonable to accept.
What it costs and when to buy it
For a small private company the premium is modest, and it is usually bought at the point somebody outside the founding group joins the board, when external investment arrives, or when a company starts trading in a regulated area. Buying it after a dispute has begun is not possible, because the circumstance is already known, which is the reason it is worth arranging while nothing is happening.
Questions people ask about directors indemnity insurance
Does the company's insurance protect its directors?
It protects the company. Directors and officers cover protects the individuals against personal liability for their decisions.
Do small companies need it?
Directors of owner managed companies face the same personal duties, including claims by a liquidator if the company fails.
Is dishonesty covered?
No. Deliberate dishonesty is excluded from every wording. The cover answers for honest mistakes in a demanding role.