I’m new to contracting, do I need directors’ and officers’ cover?
For brand new contractors, the world of business insurance can, quite frankly, be a bit overwhelming. As an employee, insurance is handled by your employer. It’s something you never even have to think about unless you have some kind of claim against them – and even then, it’s up to them to make sure they’re covered.
But when you join the world of contracting, suddenly you’re the one who needs to hold the insurance and there’s a lot you need to work out. What do you need to hold by law? What do you need to hold because contracts demand it? How much do you need of any given category of cover? Are the premiums affordable to you?
And then there’s some insurance that you read about and you wonder ‘why on earth do I need that?’ Directors’ and officers’ insurance (also known as D&O cover) is one such type of cover that contractors new to self-employment ask a lot of questions about. That’s partly because of the title.
Directors’ and officers’ cover just sounds so official, as if it’s something that’s held at board level by big corporate entities, not small personal services companies. But once you understand what D&O cover actually is, it’s much clearer as to why it’s a key component of a contractor’s business insurance.
So, let us explain D&O so that you can fully get to grips with it.
What is directors’ and officers’ liability insurance for contractors?
As a new contractor, you’re probably still in the honeymoon period and enjoying all of the freedom your new career path presents such as flexibility, managing your own hours, and generally being your own boss.
However, there are some downsides to being self-employed (dry spells, lack of workers’ rights, chasing late payments, etc.) and one of them is being personally liable should HMRC, a regulator, or a client believe you’ve broken the rules. And that’s where D&O proves to be a useful part of your contractor insurance arsenal.
D&O insurance covers company directors and officers against compensation claims should allegations of wrongful acts be made against them. If you were to be prosecuted or sued, your directors’ and officers’ liability insurance would cover your legal fees and any compensation payments that could potentially arise.
Of course, you’re not planning on breaking any rules but you’re only human and you could break a rule without even realising it. Equally, someone might think you’ve done something wrong when, in fact, you haven’t. So, what could you be accused of in order to make a D&O claim? Possible examples might include:
- Financial mismanagement
- Company law breaches
- Health and safety regulations
- Legislative contraventions
Cases such as these can result in penalties, fines or compensation awards amounting to large sums of money. D&O cover protects you financially, so that you can claim any pay-outs back. It also gives you the means of defending yourself. Without this, you run the risk of:
- Disqualification from being allowed to be a company director;
- Criminal prosecution;
- Civil proceedings.
Is D&O cover a legal requirement in the UK?
Unlike some types of cover, such as employers’ liability insurance, D&O cover is not required by law in the United Kingdom.
Do contractors need to hold D&O cover then?
Technically, you don’t have to hold any insurance cover you don’t want to if it’s not a legal requirement. However, it could be very costly not to hold D&O cover. If you don’t have it and a claim is successfully made against you then you could suddenly find yourself very out of pocket.
Say you have to pay legal fees and compensation to the tune of £100,000 – do you have that kind of cash spare? Or would you have to use savings? Sell your home? Declare bankruptcy?
It might sound dramatic, but there are contractors out there who lost it all because they weren’t covered by appropriate insurance.
D&O cover available from Kingsbridge
Here at Kingsbridge, we offer D&O cover as part of our business insurance package. The suite of contractor insurances includes:
- Directors’ and officers’ liability – £100,000 any one claim (and in the aggregate)
- Professional indemnity – £1 million any one claim (unlimited in the aggregate)
- Public liability – £5 million any one claim (unlimited in the aggregate)
- Employers’ liability – £10 million any one claim (unlimited in the aggregate)
- Occupational personal accident cover – up to £500 per week for up to 52 weeks, plus a benefit of £100,000 in the instance of death or permanent disability
This comprehensive insurance package allows you to get the insurances you need to protect yourself as a contractor all in one place, without shopping around and dealing with multiple policies and insurers. To find out more, contact us today or get a quote online.