Directors’ and Officers’ Liability Insurance

Directors’ and Officers’ Liability Insurance protects your personal assets when the limited liability status of your company fails to protect you.

Running a business in the UK today is complex. Furthermore, as a Director, Officer, or Senior Manager, you carry a significant burden. While you make decisions to drive the company forward, regulators or claimants can hold you personally liable for acts such as health and safety breaches, wrongful trading, legislative failure, or errors in judgement.

At Daines Kapp, we understand that “limited liability” is a common misconception. While it protects the shareholders, it does not protect the individuals running the company. Therefore, without adequate Directors’ and Officers’ Liability Insurance, you put your personal estate—including your home and savings—at risk in the event of a legal battle.

What is Directors’ and Officers’ Liability Insurance?

Directors’ and Officers’ Liability Insurance (often called D&O) covers the cost of compensation claims that third parties make against a business’s directors and key managers. Specifically, it pays for the legal defence costs, settlements, and financial losses arising from allegations of “wrongful acts” committed in your capacity as a company leader.

In a litigious society, allegations can come from anywhere. Even if you have done nothing wrong, the cost of defending yourself against a baseless claim can be financially crippling. Consequently, D&O insurance provides the financial backing to defend your reputation and your livelihood.

Management Liability: The Complete Protection Suite

Insurers often refer to the most robust protection for UK SMEs as a Management Liability Policy (MLP). This suite of complementary covers protects the individuals and the entity. At Daines Kapp, we typically recommend a policy that includes the following three pillars:

1. Directors’ and Officers’ Liability (D&O)

This section offers financial protection specifically for senior management. If someone accuses you of a wrongful act—such as a breach of duty, neglect, error, or omission—this cover steps in.

• Scenario: Following a workplace accident, the Health & Safety Executive (HSE) investigates your site. If they determine that an individual director is personally responsible for safety failings, the D&O policy pays for that director’s personal legal defence and potential fines (where laws permit).

2. Corporate Legal Liability (Entity Cover)

While D&O protects the people, Corporate Legal Liability protects the company. This cover protects the business against claims where a third party targets the entity itself due to management failures.

• Scenario: A shareholder or investor sues the limited company for mismanaging funds or releasing misleading financial statements. As a result, this section covers the company’s defence costs.

3. Employment Practices Liability (EPL)

In the modern workplace, we see claims under this section most frequently. EPL covers the business and its managers against accusations arising from the employment process.

• What is covered? Claims regarding wrongful dismissal, discrimination (age, sex, race, disability), sexual harassment, and failure to follow fair redundancy procedures.
• Expert Advice: In addition, many policies include complimentary access to expert legal helplines. We strongly advise clients to consult these helplines before dismissing staff to ensure you follow procedures, which often reduces the policy excess.

Why UK Businesses Need D&O Cover Now

Many private companies believe Directors’ and Officers’ Liability Insurance is only for public giants like those on the FTSE 100. However, this is a dangerous myth. SMEs and family-run businesses often face greater exposure because they lack the vast in-house legal teams of large corporations.

You may need this cover if:

• You have employees: The rise in employment tribunals makes EPL essential.
• You have investors or shareholders: Even family members can disagree on strategy, which can lead to legal disputes.
• You operate in regulated sectors: Construction, finance, and manufacturing face strict scrutiny from the FCA, HSE, and other bodies.
• You want to attract talent: High-calibre non-executive directors will rarely join a board that does not have D&O insurance in place.

Frequently Asked Questions

Does the law require D&O insurance?

No, the law does not require Directors’ and Officers’ insurance in the UK. Nevertheless, because directors have unlimited personal liability for their actions, most experts consider it a “must-have” for prudent business governance.

Does the company pay for the insurance?

Yes. The company generally pays the premium, and accountants usually treat it as a legitimate business expense. Considering the policy protects the directors personally using company funds, we often tell our clients it is a “no-brainer” for the board.

What does D&O cover exclude?

Standard exclusions typically include fraud, criminal acts (where courts establish guilt), and intentional non-compliance. Crucially, it also excludes claims related to professional advice or service errors; for those risks, you should ensure you have adequate Professional Indemnity Insurance in place.

The Daines Kapp Difference

We do not simply sell you a policy and walk away. On the contrary, we act as your partners in risk management. Whether you are a local sole trader expanding into a limited company, or a large established firm, we tailor the indemnity limits to your specific risk profile.

Should the worst happen, you won’t be left navigating a call centre. We handle the claims process and fight your corner to ensure you get the defence you deserve.

Don’t wait for a claim letter to land on your desk. Protect your personal future today.

Contact the Daines Kapp team regarding Directors’ and Officers’ Liability Insurance

Directors’ and Officers’ Liability (D&O)

This section offers financial protection covering the senior management should they be accused of wrongful acts.

For example, following a near miss on a construction site, which is then investigated by the Health & Safety Executive, who determine that an individual director is responsible for a range of health and safety failings, bring a prosecution against that individual director in their personal capacity. A D&O Policy will pay for the legal defence costs of such a prosecution.

Corporate Legal Liability

This cover is also referred to as ‘entity cover’, and covers similar exposures to the D&O section above, but for the benefit of the company as a whole.

Employment Practices Liability

Employment Practices cover, known as EPL, covers the business for accusations of wrongful acts that have arisen from the employment process, such as wrongful termination, discrimination, sexual harassment and so on, in short, any matter which could end up in an employment tribunal.

The policies also typically have complimentary access to expert legal advice to assist with employment matters including terminations and redundancies. Some require that the insurer approved legal advisors are consulted prior to any such actions, with others offering reduced excesses where undertaken.