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Directors’ and officers’ liability: do contractors need it?

Directors’ and officers’ liability insurance (D&O for short) often falls into the category of “I doubt I need that,” accompanied…

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Directors’ and officers’ liability insurance (D&O for short) often falls into the category of “I doubt I need that,” accompanied by a dismissive shrug for many contractors. It sounds a bit grand and the average sole trader or limited company contractor probably doesn’t think it’s for them. However, it’s worth considering as part of your suite of business insurance because it offers you protection against what could turn out to be costly claims.

After all, can you afford to have to pay out legal fees and defence costs should you fall foul of a regulator? Or need to cover costs after an unwitting breach of health and safety law? Unless you have a huge reserve of savings or assets to fall back on, the answer is probably no. And, even if you do have assets you could use, why should you have to? No one wants to use their hard-earned savings to cover costs that could easily be avoided. To help you understand D&O a bit more, we’ve used this blog to go over what it covers and present you with some example claims to give you a clearer idea of how it might be used.

What does directors’ and officers’ liability insurance cover?

If you’re self-employed, whether as a limited company contractor or as a sole trader, there are so many reasons you can be held personally liable. If it appears that you haven’t been sticking to the rules, action can be brought against you by a client, HMRC or a regulator. D&O, however, is designed to give you financial protection against claims of this nature, which have the potential to run into the hundreds of thousands of pounds.

D&O covers you for legal fees and defence costs, giving you a valuable safety net should you be accused of things such as financial mismanagement, a health and safety breach, a legislative failure, or breach of company law.

Of course, you probably don’t intend to break any rules, and may not even believe that’s what you’re doing. But mistakes can be made and, if the worst comes to the worse, D&O is there to catch you.

Director’s and officers’ liability cover: example claims

The easiest way to see how D&O works is to look at some example claims:

Laura is an IT contractor. Seriously in demand, she lost track of some admin deadlines and she failed to submit her accounts for her limited company to the Registrar of Companies within the permitted timeframe. She was prosecuted under the Companies Act and, as a result, was forced to pay court costs, as well as all of the fees for her legal defence. Fortunately, Laura held directors’ and officers’ liability insurance and was able to claim for these costs on her policy.

Dominic, meanwhile, is a design engineer. He accepted a contract with Company A but then, during lockdown, there were delays getting him added to the contract. During this period of delay, Company B came along and offered Dominic a different contract, with the promise of additional work. Needing income, Dominic accepted the contract with Company B, failing to honour his contract with Company A. As a result, Company A sued Dominic for breach of contract and he was forced to pay out. Luckily, he was covered by his directors’ and officers’ liability insurance, protecting him financially.

As you can see, neither of these contractors broke rules with malicious intent, but they still had to face the consequences of their actions. D&O cover provides a safety net that gives peace of mind and protects your finances.

What to look for in directors’ and officers’ liability insurance

When looking at D&O cover, you need a policy that covers you for the right amount so you don’t end up underinsured.

Kingsbridge provides directors’ and officers’ liability insurance as part of our package of business insurance for contractors, giving you everything you need for complete peace of mind as a contractor. The standard package 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 – weekly benefit of up to £500 payable for up to 52 weeks, plus personal accident death and disablement cover up to £100,000 (payable as a lump sum)

This tailored package provides the most comprehensive cover a contractor could need, and helps you to protect yourself against financial risk. To find out more or get a quote you can get in touch with our friendly team of contractor insurance experts, or visit our website to buy online.

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