Being a company director carries personal legal responsibilities, and a claim could put your own assets at risk, not just the company's. Directors' and officers' insurance protects the individuals who run a business. This guide explains directors' and officers' (D&O) insurance: what it covers, why personal liability exists, and who needs it.
What D&O insurance is
Directors' and officers' insurance, usually shortened to D&O, protects the directors and senior managers of an organisation against claims arising from their decisions and conduct in running it. Crucially, it protects them personally, covering legal defence costs and, where applicable, damages, so that a director's own money and assets are not exposed. It is sometimes part of a wider management liability policy that bundles related covers for the business and its leaders.
Why directors face personal liability
Company directors owe legal duties, set out in company law such as the Companies Act 2006, and can be held personally responsible if they breach them. This means a claim can be brought against a director as an individual, not just against the company, potentially putting their personal finances at risk. Because the company is a separate legal person, its own insurance does not necessarily protect the director personally, which is the gap that D&O cover fills.
What it covers
D&O insurance typically covers claims alleging mismanagement, breach of duty, negligence, errors in running the business, regulatory investigations, and certain employment-related claims against directors, along with the legal costs of defending them. The cover is geared to the kinds of allegations made against the people in charge, as opposed to claims about the company's products or services. Defence costs alone can be substantial, so this cover can be valuable even where a claim ultimately fails.
Who can bring a claim
Claims against directors can come from many directions: shareholders or investors, employees, regulators, competitors, creditors, customers or other third parties. Allegations might concern decisions that caused a loss, statements made when raising funds, the handling of employees, or compliance with regulation. Because so many parties can potentially bring a claim, directors of even small companies can find themselves personally targeted, which is why D&O cover is not just for large corporations.
Who needs it
D&O insurance is relevant to limited companies, charities and other organisations with directors, trustees or officers, including small companies and startups, not only large firms. Anyone who sits on a board or holds a senior management role carries the responsibilities that D&O cover addresses. Startups raising investment, and charities with volunteer trustees, are common examples where individuals want the reassurance that their personal position is protected, regardless of the organisation's size.
Also called management liability
D&O cover is often offered as part of a management liability policy, which can combine D&O with related covers such as employment practices liability, for claims like discrimination or unfair dismissal, and cover for the company itself. For a small business, a management liability package can be a convenient way to cover the leadership and related risks together. The exact bundle varies, so check what a given policy includes for both individuals and the organisation.
What it does not cover
D&O insurance is not a licence for wrongdoing. It generally excludes deliberate fraud, dishonesty and intentional illegal acts, and claims a director knew about before taking out cover. Some policies also exclude or limit certain risks, and cyber-related claims may need a separate policy, as our guide to cyber insurance for small businesses explains. Reading the exclusions, and understanding that it covers genuine claims rather than deliberate misconduct, sets the right expectations.
Claims-made cover
Like professional indemnity, D&O is usually written on a claims-made basis, so the policy in force when a claim is made responds, not the one in force when the events occurred, as our guide to professional indemnity insurance explains. This makes continuous cover important, and means that if you step down or the company winds up, you may need run-off cover for claims about your time in office that arrive later.
Examples of D&O claims
Claims against directors take many forms. An investor might allege that statements made when raising money were misleading; an employee might bring a claim about how they were treated by a director; a regulator might investigate a director's conduct; a creditor might allege wrongful trading after a company fails. In each case, the director may need to defend themselves personally, and the legal costs alone can be heavy. D&O cover funds that defence and any damages.
Charities and their trustees
D&O cover is not only for commercial companies. Charities have trustees who carry legal responsibilities and can face claims about how the charity is run. Many trustees are volunteers who would be alarmed to learn their personal assets could be exposed. Trustee indemnity insurance, a form of D&O cover, protects them. For charities relying on volunteer trustees, this cover can be important both for protection and for reassuring people willing to serve on the board.
How the cover is structured
D&O policies are often structured to cover the individuals directly, and to reimburse the organisation where it has indemnified its directors. The practical effect is that the people in charge have defence costs and damages covered, whether or not the organisation can or does step in to protect them. The detail can be technical, but the key point is that the cover is designed to protect individuals personally, which their organisation's other insurance may not.
Run-off when you leave
Because D&O is claims-made, a director who steps down, or an organisation that winds up, can still face claims about past conduct that arrive later. Run-off cover continues protection for such claims after the role or the organisation ends, for a chosen period. If you leave a board or close a company, considering run-off cover protects you against late claims relating to your time in office, which a lapsed policy would not respond to.
The essential point is that company law makes directors and senior people personally accountable, and the organisation's own insurance may not protect them; D&O cover fills that gap, which is why it matters for small companies, startups and charities just as much as for large ones.
If you sit on a board or hold a senior role in any organisation, it is worth checking whether D&O cover is in place and whether its limits and terms are adequate, since it is your own personal position, not just the organisation's, that the cover is there to protect against the claims that running a business can attract.
In short
Directors' and officers' insurance protects directors and senior managers personally against claims arising from running the organisation, covering defence costs and damages for allegations like mismanagement, breach of duty and regulatory matters. Directors face personal liability under company law, which the company's own cover may not address. It suits limited companies, charities and startups of any size, is often part of management liability cover, excludes deliberate wrongdoing, and is usually claims-made.
Where to get help and next steps
Read our guides to professional indemnity insurance and cyber insurance for small businesses to see how business covers fit together. This is general information, not financial or legal advice.