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Your quick guide to D&O

At a glance

  • Directors’ and officers’ (D&O) claims have increased four-fold in the past 10 years, making D&O insurance more relevant than ever
  • Many businesses still fail to understand its importance in today’s business environment
  • We discuss the main aspects of D&O to help you in your discussions with customers

Directors’ and officers’ liability insurance (D&O) is an increasingly important cover for businesses of all shapes and sizes.

We look at the main reasons to hold D&O cover and the range of protection now available to your customers.

What is D&O insurance?

Directors, managers and employees are all subject to various duties and standards in the performance of their roles. These can range from simply acting in the best interests of the organisation, to complying with strict legal and regulatory standards.

If an individual falls short of their obligations they can be held personally liable via civil, criminal or regulatory proceedings.

D&O insurance protects these individuals, covering the costs of defending allegations made against them and reimbursing associated fines and penalties.

Modern policies also typically include certain protection for the organisation itself, as well a range of optional covers.

What is a typical D&O claim?

There is no such thing as a typical D&O claim. Directors and officers face a broad range of exposures, and claims can come from virtually anywhere, including:

  • Customers
  • Shareholders
  • Competitors
  • Suppliers
  • Creditors
  • Employees
  • The organisation itself
  • Regulators
  • Governmental and law enforcement agencies

D&O insurance provides the best safety net against the wide range of risks facing individuals within an organisation.

How does this relate to corporate governance?

In recent years, the role of corporate governance has come under intense scrutiny, with a clear trend towards greater individual accountability. In fact, since 2008’s financial crisis, D&O insurance claims have increased four-fold, largely attributed to intensifying regulation across both the UK and globally.

One example is the latest revision to the health and safety sentencing guidelines, which introduced a greater focus on the actions of individuals, and lowered the thresholds for custodial sentences to be awarded.

This trend of greater individual accountability has made D&O insurance more relevant than ever for today’s businesses.

Who needs D&O cover?

Every organisation can benefit from D&O insurance, regardless of its size or legal status. Every director and officer faces various duties in the performance of their role, and each is vulnerable to potential allegations of wrongful conduct.

Smaller organisations may arguably gain the greatest relative benefit from D&O cover, as they typically have fewer resources to defend allegations or fund potential fines, penalties or awards for damages. Despite this, many small and medium enterprises still fail to appreciate the importance of D&O cover in today’s marketplace.

Zurich offers several D&O products, each tailored to the specific needs of different organisations. To determine which solution is right for your customer, please see our simple flow chart.

What about limited liability?

One common misunderstanding is that directors and officers are protected by an organisation’s limited liability status.

While limited liability offers financial protection to an organisation’s shareholders, it bears no relevance to the liabilities attached to directors’ and officers’ day-to-day roles and responsibilities.

Directors’ and officers’ personal assets – such as cash, property and pensions – are therefore all at risk if accused of wrongdoing in the performance of their role, with no limits on their potential liabilities.

How does D&O cover respond to a claim?

D&O insurance protects individuals against alleged ‘wrongful acts’, which are broadly defined. This includes funding defence and investigation costs, and reimbursing fines or penalties when a defence is unsuccessful.

Most modern D&O policies will also extend cover to the organisation itself where it is allowed to fund claims on behalf of its directors and officers.

An important exclusion to be aware of is that, on public policy grounds, policies are unable to reimburse fines issued for criminal offences, such as fraud.

Executive risk – beyond D&O

Modern D&O policies have developed to offer protection against a wide range of risks associated with running a business.

For example, Zurich’s Executive Risks Solutions policy can be extended beyond its core D&O coverage to offer protection against Employment Practices Liability, Pensions Trustees Liability and Employee Dishonesty/Crime.

Advances such as these now make it simpler for brokers differentiate their D&O offering by catering for the full range of executive risks their customers face.

To find out more information, please speak with your local Zurich contact.

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