As the director or an officer of a company – whether you’re a president, treasurer, secretary or another officer role – you often carry specific responsibilities for your company’s actions. You may have to answer to stakeholders, shareholders, the board and government regulators which may leave you personally liable if you breach your obligations.
That’s a lot of pressure!
In our litigious modern world, having liability insurance for directors and officers can protect you from losses due to claims of actual or alleged wrongful acts in your role as a director or officer. If the company indemnifies a director or officer for such liability, they will be entitled to cover under the Company Reimbursement section of the policy. This policy can help cover the financial fallout of your liabilities if you’re taken to court (whether or not you did anything wrong) or should something not go ‘according to plan.’
There are different types of business insurance to choose from, which you’ll typically be able to put together in one insurance package. The exact types you may need will depend on the nature of your business.
Here are some common insurance options company directors may wish to consider.
N.B. this article is a guide, not specific business advice for you or your company. The different types of business cover are subject to terms, conditions and exclusions specific to your policy wording or Product Disclosure Statement.
Put simply, Management Liability business insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business. This can be important to have if you are a director or an officer since you may face direct legal action due to the greater responsibilities – and liabilities – you have to deal with.
What makes Management Liability cover different from some other insurance products is that it covers you as an individual, rather than the company itself (though there are policies which cover both you and the company). You don’t pay for it yourself, as your business purchases it, but it specifically covers you and other colleagues in similar management positions.
Typically, this policy will include Directors and Officers Liability insurance – other times insurance companies will offer both ‘regular’ Management Liability business insurance and a specific policy for directors and company officers. Regardless, directors and officers policies usually contains three types of coverage: side A, side B and side C. You may have one of these, two combined together or all three.
Specific terms, coverage and wording can differ between insurers. It’s vital you go through the policy documents for further details.
Directors and officers may legally be liable for a range of things, including (but not limited to):
Accusations of sexual harassment, wrongful termination and discrimination are also not uncommon and would typically be covered by the Employment Practices Liability section of a Management Liability Business Insurance policy.
While management liability business insurance covers events that may occur in the day-to-day of running your company, Professional Indemnity insurance protects you against losses claimed by a third party due to alleged or actual negligence or errors in your professional services or advice. Being a director or company officer means you as an individual might not be providing said advice or professional services, but your employees could be (depending on what exactly your company does). This means you may need to consider taking out this policy to cover your company.
Does your company make and sell a particular product, or whole range of products? No matter how strongly you believe in your product, there is still a chance that something can go wrong – leaving you with possible legal costs. Product liability insurance protects your business against claims by third parties relating to property damage or personal injury caused by your products.
Harnessing the full potential of technology can open up new avenues for your company, be it data and analytics or offering entirely new services. However, technology brings an entirely new mix of risks to your business. No matter the size of your company, you’ll likely need to think carefully about Cyber Liability insurance.
Cyber Liability insurance is designed to help protect you from claims in the event of a cyber breach or attack and support your profitability. Costs associated with defending a cyber claim are also covered. Cyber Liability insurance can help out in the event of a cyber-attack, including cover for:
Perhaps the most ‘basic’ type of business insurance, Building Insurance covers your building if it was damaged as a result of a fire, storm, malicious activity or another defined event listed in the policy. You may include Contents Insurance to cover the loss of or damage to items such as business equipment, stock, plant and machinery, records and furniture belonging to you at the insured location. This cover can also include glass such as windows and internal glass walls (though this might cost extra).
There are more business insurance options you might want to investigate as a company director or officer, such as tax audit insurance or public liability insurance. Check out our guide to various business insurance types to learn more.
While this type of business insurance isn’t compulsory, it’s important to be pragmatic and have insurance for when things go wrong. Lawsuits, compensation and fines can financially haemorrhage a company, but liability insurance can step in to cover the cost.
The period which you’re covered for can differ between insurers, but a common arrangement is 12 months of cover. At the end of 12 months, you can renew your policy with your insurer or compare your options to see if you can find a better deal elsewhere.
Yes, there will be financial limits on coverage, which differ based on policy and insurer. These limits may apply to individual cases and types of cases or annual limits for how much you can claim within a year.
If the total expense of a lawsuit goes above your coverage limit, you or your company will need to pay the difference.
There’s a range of things you won’t typically be covered for. These are known as exclusions, and common examples include, but not limited to:
Yes, there are excess payments. This is in effect a cost your insurer charges when you make a claim, which is typically deducted from your payout.
If you leave the company, you can still be sued years later for any actions you took while you were a director or officer. Some liability insurance policies can include run-off cover. Run-off cover may be included in the standard price or bought as an optional extra that provides liability insurance after leaving the company.
Depending on your insurer and policy, you can be covered for several years after you leave the company.
You may potentially be sued by the company you work for. Not all liability insurance covers this instance – known as insured v insured – so it may be worth checking to see if your policy excludes or includes this event.
Professional Indemnity insurance isn’t designed to cover management positions like directors and officers, or their specific liabilities. Professional Indemnity covers mistakes or breaches of professional duty from a business, rather than the director and their liabilities.
Directors and officers of a not-for-profit can still be just as liable for their actions as those working in a big corporation. Not-for-profits can take out director’s and officers’ liability insurance just like any other company.