Directors and Officers Insurance - Cover Explained

Directors and Officers - A cover which is frequently bought by businesses from SME's to Global firms and the top 50 FTSE companies.

The cover is requested by businesses either from their Start up stage or as a business grows and is looking for more protection in the event a claim occurs.

A lot of us will recommend this cover to clients but can you confidently say you understand the need for each section of cover and how it will become operative in the event of a claim?

So in simple terms, Directors and Officers cover is broken down into 3 sections which are broken down as A, B and C.

Side A - Cover for claims brought against directors for their own individual assets. This cover will become operative against a business where it is clear one individual director is to blame and the indemnification goes against them personally. An example could be this director makes a decision on behalf of the business which either he or she didn't consult other directors about or made a decision which completely goes against the companies own ethical policy. This side of cover usually and most of the time always carries a Nil excess.

Side B - Cover for claims brought against a director or more than one where the business accepts liability and takes the agreement for the company to be indemnified. This would therefore be an event where the business either agreed to accept this director made an individual mistake or as a business they agreed and admitted liability with the director who the claim was brought against.

Side C - This side of cover is known as 'Securities cover' or in the market 'Shareholders Litigation cover'. This cover is only really needed for a firm which are Publicly Listed or on the Stock Exchange. An example of a claim would be in simple terms, if say for example Cadburys overnight purchased their main competitors Nestle and as a result investors in shares saw their shares rocket based on the internal calculations Cadburys made to their accounts from the M&A. If it was shown the directors actually reported the acquisition numbers incorrectly and they reported to high which led to the share price dropping as the acquisition number dropped, any new or current shareholders who felt they made a loss based on the directors errors or were wrongly informed - in theory they could bring a claim against Cadburys for this.

Hopefully the above explanation helps to give you a core idea of what the 3 Sides of D&O cover but... in addition to this, I am sure some of us have heard of two cover extensions called Employment Practice Liability and Corporate Legal Liability, so how do these covers become operative/triggered?

Employment Practice Liability (EPL) - This cover is commonly referred to as cover for directors for claims brought to them by their employees which can head down the employment tribunal route - Wrongful dismissal, HR complaints, Sexual Harassment, discrimination etc. This cover is usually quite a struggle to source in the market but something I found out a couple of weeks ago, is some EPL claims can actually full under Side A cover, so it is certainly worth asking your insurers or reviewing wordings. Some EPL extensions in wordings extend to cover the Entity which isnt covered under Side B but if it isn't specifically excluded under Side A cover, EPL claims brought against an individual can sometimes be covered.

Corporate Legal Liability (CLL) - Corporate Legal Liability?protects a company from claims made for wrongful acts. This could be anything from a breach of contract to copyright infringement or other intellectual property, a good example of this could be in todays current climate if an energy company or utility company where found to be taking advantage of individuals on energy bills and actually the cost of living was increased for people in everyday life just because firms were massively increasing profit margins and customers were found to be treated unfairly.

Anyway, I hope this article helps and breaks D&O cover down in a more simpler form for you! Feel free to drop any questions on the post and we of course welcome anyone else's opinions or commentary on the importance of these covers.