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What D&O insurance covers
A D&O policy responds to claims made against a company's directors, officers, or senior managers in their individual capacity, alleging a wrongful act in the management of the company. Wrongful acts include breach of duty, neglect, error, omission, misstatement, misleading statement, and breach of trust. The policy typically covers defence costs — often the largest element of a claim — plus any damages or settlements for which the individual is personally liable. Claims can come from shareholders, creditors, employees, regulators, or third parties.
Why personal exposure is real for company directors
Directors of limited companies enjoy limited liability for company debts, but that protection does not extend to personal wrongdoing or breach of statutory duty. HMRC can pursue directors personally for unpaid PAYE, VAT, or national insurance in cases of fraud or negligence. The FCA and other regulators can hold individuals personally accountable. Employees can bring claims for wrongful dismissal or discrimination that are directed at a named manager. Creditors can challenge transactions at undervalue or preferences made before insolvency. D&O cover addresses each of these scenarios.
The three main insuring clauses
Side A covers individual directors when the company cannot or is not permitted to indemnify them — for example, in insolvency. Side B reimburses the company when it has indemnified its directors under its articles or an indemnity deed. Side C (entity cover) extends protection to the company itself for securities claims, usually relevant only to listed companies. For most private limited companies, Side A is the most critical protection, as it activates when the company is unable to stand behind its directors.
D&O and commercial borrowing
Some lenders, particularly those providing larger facilities, view D&O cover as a positive indicator of governance maturity. Sophisticated investors or private equity co-investors may require it as a condition of a deal. Even where not required, the cover makes practical sense for any director who has given personal guarantees or operates in a regulated environment — the two circumstances where personal exposure is highest.
Frequently asked questions
Does a limited company have to buy D&O insurance?
There is no statutory requirement for a private limited company to hold D&O insurance. However, given the personal liability exposure that directors face, many advisers recommend it as prudent protection, particularly for businesses with multiple shareholders, external investors, or significant employee headcount.
Can a company indemnify its directors without an insurance policy?
A company can include director indemnity provisions in its articles or a separate deed, and this is common. However, a company indemnity is only as strong as the company's solvency. If the company is insolvent — precisely when claims are most likely — the indemnity is worthless. D&O insurance provides protection independent of the company's financial position.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.