Imagine this: after years of research and saving you decide to start your own business. Things are a little slow to begin with, but after a few months, it starts to take off. A couple of years later your business is incredibly successful, backed by a team of dedicated, hardworking employees. And then, someone makes a claim against your director and you lose everything because you aren’t protected by Directors’ and Officers’ (D&O) insurance.

It’s a sobering thought but, unfortunately, it can happen to any business regardless of its size or industry. Generally speaking, claims and legal proceedings can be brought against a director or officer for any decision made or act carried out within the workplace, however innocuous it may seem at the time.

Claims aren’t just made by customers; they could come from regulators, shareholders and investors, as well as from employees. There are many reasons for a claim, such as a breach of trust or duty, wrongful trading, neglect, accounting and fraud issues or breaches of health and safety regulations. The director or officer needn’t even be actively involved in the incident; if the court believes they should have known what was happening, they’ll still be held liable for negligence.

In order to mitigate risk posed by these claims, businesses have taken out D&O insurance. This insurance provides protection by covering legal costs to help defend claims, and will pay out costs in the event of an unsuccessful defence.

Some businesses wrongfully assume that Professional Indemnity (PI) provides full protection of their assets and employees. However, PI merely protects a business when someone makes a claim that they received substandard advice and/or poor service. D&O, on the other hand, protects a business in the event of claims made in relation to how the company has been managed.

Let’s use an example. In today’s increasingly-connected world, no business is safe from cyber-attacks. In fact, with so much sensitive data now stored online, the number of cyber-attacks against businesses is on the rise. If you were to suffer a breach, you could potentially find yourself dealing with claims from a number of parties. Customers could claim for compensation after their personal information was compromised, stakeholders could claim for a drop in share value, and business partners could claim for cancelled contracts. On top of these claims, your business could also face criminal and regulatory investigations.

If you’re a smaller business you might be wondering if D&O is necessary. However, all businesses are susceptible to risks and compensation claims. In fact, D&O insurance might be even more important for smaller businesses as they often do not have teams in place to ensure best practice.

If you are considering acquiring D&O insurance or would like to review your current cover please get in touch with the team at Lockyers or call 01924 278222.