Directors’ and Officers’ Insurance

Dispelling the directors’ limited liability myth
The appeal of limited liability is one of the main reasons business owners choose to operate a limited company. It helps separate the company’s finances from the personal finances of its shareholders, meaning directors are not usually responsible for company debts simply because they run the business.

However, this ‘limited’ protection is sometimes just that. Limited.

The limits of limited liability
Limited liability does not give directors complete personal protection from claims, investigations or prosecution. If a director is accused of acting improperly, breaching their duties or failing to meet legal responsibilities, civil, criminal or regulatory proceedings can still be brought against them.

Under the Companies Act 2006, directors have duties including acting within their powers, promoting the success of the company, exercising reasonable care, skill and diligence and avoiding conflicts of interest.

While these duties are owed to the company, alleged breaches lie at the director’s personal door.

When the protection stops
A director may face a personal claim if shareholders, creditors or the company itself allege that their decisions caused financial loss. This might involve mismanagement, breach of duty, fraudulent trading, conflicts of interest or misleading statements.

The risks can be particularly serious during insolvency. If directors continue trading when there is no reasonable prospect of avoiding insolvent liquidation, they may face allegations of wrongful trading and could be required to contribute personally to company assets.

Directors can also be investigated or prosecuted where a business fails to meet regulatory obligations.

The Health and Safety Executive completed 246 criminal prosecutions in 2024/25, with a 96% conviction rate. Directors found guilty of health and safety offences can face significant fines and even imprisonment.

Disqualification is another risk. Directors can be banned for between two and 15 years if they fail to meet their legal responsibilities. In 2025/26, the Insolvency Service reported 1,158 director disqualifications, with the average ban lasting 8.1 years. Criminal investigations also led to 81 convictions.

Protecting the people behind the business
Directors’ and officers’ (D&O) insurance is designed to protect the personal assets of directors, officers and senior managers when claims are made against them in connection with their management decisions.

Even where a director has acted honestly, they may still need legal representation following an oversight or allegation. D&O insurance can help meet these costs and provide an important layer of financial and legal protection.

It can protect current, former and future directors, as allegations may emerge years after a decision was made. As D&O policies are generally written on a ‘claims made’ basis, continued cover is important because the relevant policy is usually the one in place when the claim is made.

Even when a claim is dismissed, defending an allegation or responding to a regulatory investigation can still be expensive. D&O can help cover legal defence and investigation costs, settlements and compensation awards.

There are still limits to this protection. Claims involving proven fraud, deliberate criminal conduct or illegal personal profit will normally be excluded, although defence costs may be paid while allegations are investigated. Bodily injury, property damage and professional advice may also be limited or excluded unless specifically included.

But with the average D&O claim costing around £70,000, and one in five private companies in the UK having experienced a D&O claim or the threat of one, the risks are too significant to overlook.

Sources
https://www.gov.uk/government/publications/the-health-and-safety-executive-annual-report-and-accounts-2024-to-2025/executive-summary-health-and-safety-executive-annual-report-and-accounts-2024-to-2025
https://www.gov.uk/government/publications/insolvency-service-enforcement-outcomes-management-information/insolvency-service-enforcement-outcomes-2025-26
https://www.gov.uk/government/publications/insolvency-service-enforcement-outcomes-management-information/insolvency-service-enforcement-outcomes-2025-26
https://www.hellopolaris.co.uk/blog/the-ultimate-guide-to-directors-and-officers-insurance-for-small-businesses/