Under most company’s Articles of Association the entity undertakes to indemnify its directors and officers against actions brought against them whilst undertaking their roles. This typically applies to all directors whether directly employed or acting in a non-executive capacity.
Whilst having a company’s indemnity is important, it is vital that this is backed up with sufficient resources to provide the practical protection. This will involve covering the costs of a proficient legal defense, other specialist fees and ultimately, awards and damages. Rather than expose the company’s assets to such a risk, companies ought to arrange a Corporate Directors & Officers (D&O) Insurance policy. This policy will span all directors and officers and will provide the funds for the costs outlined. Once the D&O policy has been exhausted (of if there isn’t one in place) the company’s assets are then at risk.
Should the company’s assets (including D&O cover if there is any) have been exhausted, a Director must then fund the balance of any costs or awards personally. This is where an individual policy comes in to play by providing the final layer of personal protection. Individual Director’s Liability Insurance also provides the necessary cover should the action be brought by the employer itself.
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