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Directors and Officers Insurance

Also known as: D&O Insurance, Directors' Insurance

Definition

Directors and Officers Insurance (D&O) is liability insurance that protects company directors personally by covering legal costs and damages when they're sued for alleged wrongful acts while running the business.

Understanding D&O insurance is essential for estate planning because director liability extends beyond resignation and death—your estate could face claims years later, potentially depleting inheritances.

What Does Directors and Officers Insurance Mean?

Under English and Welsh law, company directors have unlimited personal liability for their actions. Section 233 of the Companies Act 2006 permits companies to purchase D&O insurance covering directors for negligence, breach of duty, or breach of trust. This insurance protects directors' personal assets—including savings, homes, and investments—from being seized to pay legal claims.

D&O insurance operates on a "claims made" basis, meaning it covers claims made during the policy period regardless of when the event occurred. Emma served as finance director until May 2022. In January 2024—20 months after resigning—shareholders sued her personally for allegedly misrepresenting 2021 financial projections. Her D&O insurance covered £67,000 in legal costs and £125,000 in settlement, protecting her personal savings from the £192,000 total cost.

The insurance covers legal defence costs, damages, and settlements from claims by shareholders, employees, or regulators. However, D&O does not cover intentional fraud, criminal acts, or uninsurable regulatory fines. Coverage extends to current, past, and future directors, including deceased directors' estates.

David was a director of a family construction company until his death in March 2023. Eighteen months later, the Health and Safety Executive prosecuted David's estate over a 2019 workplace accident. His D&O policy covered £85,000 in legal costs. Without this coverage, his widow would have used estate funds—significantly reducing the inheritance for their three children.

When leaving a directorship, directors need "tail coverage" or "run-off insurance" to protect against claims from past actions. Without tail coverage, your estate remains exposed to claims with no protection.

Common Questions

"Does D&O insurance protect my personal assets if someone sues me as a director?" Yes, D&O insurance protects your personal assets by covering legal defence costs and damages you're legally liable to pay following allegations of wrongful acts. Without this cover, you could face claims from shareholders, employees, or regulators that threaten your personal wealth, as directors have unlimited personal liability under UK law.

"Does my company's general business insurance cover me personally as a director?" No, general business insurance only covers claims against the company as a whole. D&O insurance specifically protects individual directors from personal liability for management decisions, breach of duty, or regulatory violations, which are not covered by standard business policies.

"What happens to D&O insurance coverage when a director dies?" D&O insurance typically extends coverage to a deceased director's estate, heirs, and lawful spouse if they are named as co-defendants in claims arising from the director's actions while alive. This protection is crucial for estate planning, as your estate could face claims years after your death, potentially depleting inheritances.

Common Misconceptions

Myth: "If my company has insurance, I'm automatically protected personally as a director"

Reality: Standard business insurance policies only cover the company as an entity, not individual directors personally. D&O insurance specifically protects directors' personal assets when they face claims for management decisions or alleged breaches of duty. Without D&O coverage, your home, savings, and other personal assets could be seized to pay damages even if your company has comprehensive business insurance.

Myth: "D&O insurance only matters while I'm actively serving as a director—once I resign, I'm no longer at risk"

Reality: Directors face liability for actions taken during their tenure for many years after resigning or even after death. D&O policies operate on a "claims made" basis, meaning you're only covered if a claim is made while the policy is active. When you leave a directorship, you need tail coverage to protect against claims arising from your past actions. Without this coverage, your estate could face claims after your death, depleting the inheritance you intended for beneficiaries.

  • Limited Company: D&O insurance protects directors of limited companies from personal liability arising from managing the company.
  • Director: The person who can be held personally liable for management decisions that D&O insurance protects against.
  • Business Assets: D&O insurance protects personal assets (home, savings) distinct from business assets distributed through the will.
  • Liabilities: Directors face unique personal liabilities requiring specialized D&O insurance documented in will planning.
  • Estate: D&O insurance extends to a deceased director's estate, shielding inheritances from claims.

Need Help with Your Will?

As a director, protecting your estate means understanding your personal liabilities. D&O insurance coverage should be documented in your estate plan to ensure claims don't deplete the inheritance for beneficiaries.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete, legally binding will plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.