Directors and officers liability insurance

In its basic form, D&O liability insurance indemnifies directors in respect of liability to third parties arising out of wrongful acts. The cover affords directors the security of knowing that their personal assets are not in the frontline if claims are made arising out of a director's acts or omissions in his/her capacity as director.

In most policies the cover extends to include an indemnity in respect of losses that might involve allegations of dishonesty or fraud, unless that conduct can be proved. Criminal penalties and sanctions are in themselves uninsurable for reasons of public policy. However, the legal costs incurred by directors in dealing with investigations and prosecutions - which can be substantial - can be insured against. The costs involved in dealing with lengthy investigations, and in defending a prosecution - especially where there are complex technical issues in dispute that necessitate extensive technical expert evidence - can run to many hundreds of thousands of pounds.

Some D&O policies will also indemnify in respect of civil fines, legal costs of defending disqualification proceedings and bail bond expenses where a director is required by a court to pay bail or an equivalent bond. The stress involved in dealing with investigations and in defending prosecutions of this nature is considerable enough. The employing company should provide insurance for each director especially as if several are under investigation each willrequire own legal representation.

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