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14 February 2023

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Don’t make it personal…The benefits of D&O Insurance


With regulators taking a far keener interest in the processes of small and medium-sized enterprises (SMEs), Directors and Officers (D&O) insurance claims have multiplied four-fold in the past decade … yet, astonishingly, less than half of the UK’s SMEs have D&O cover.

Directors can be held personally liable on civil, criminal or regulatory grounds for falling short on any one of their many obligations, and as a direct result their personal assets could be put at risk. The challenge can come from almost any quarter – regulators, competitors, customers, shareholders, even their own organisation.

So why doesn’t everyone invest in the considerable and reassuring protection of D&O insurance? Simple misconceptions are often to blame, for example:

1.       Smaller businesses don’t make big mistakes …
The problem with this stance is that, if anything does go wrong, a small or medium company is as liable legally as a large one – and the personal assets of the directors are probably an easier target. The actual mistake may not be that big, but that doesn’t mean it won’t be costly.  Legal charges can quickly mount up.  D&O doesn’t cover dishonest acts, but directors can be found personally liable for many other things, such as failing to take sufficient care – in which case legal costs, including fighting possible disqualification as a director, and any financial awards would be covered.

2.       A limited company has limited liability …
The company does … but, sadly, not the directors. Indeed, the directors’ liability can potentially be unlimited. Many SMEs do not have the benefit of legions of risk managers, in-house lawyers, compliance professionals, etc., so occasionally genuine errors may occur. If you’re sued, D&O can cover events such as tribunals, defence costs and any associated payments and fines.

3.       The company will look after me …
Possibly … always assuming there’s enough money in the kitty! Maintaining a decent cash flow is hard enough without an expensive court case soaking up resources. If the cash runs out, the directors will be left holding the bill.  Directors can face claims and allegations – sometimes totally unfounded – which they will be forced to defend. Even unfounded allegations can be costly, time-consuming and stressful. At such times, D&O cover can be a huge relief.

4.       I don’t work for the company any more …
Unfortunately, there’s a little thing called ‘past liability’. You can be held liable years afterwards for decisions you’ve made.  Even retirement or death doesn’t offer reprieve. Would you bet on your previous employer footing the bill?  If not, ensure there’s a D&O policy in place now to protect you in the years to come.

Richard Grainger, Centor’s Broking Director, observes: ‘A lot of SMEs typically have fewer resources to defend allegations or fund potential penalties, so D&O is an essential business insurance. We would be happy to advise on the most cost-effective policy suited to your needs.’

Fore more information, get in touch with:

Richard Grainger
0207 330 8705