In today’s complex regulatory and corporate environment, the personal liability of directors and officers has become a serious risk. Whether leading a small company or sitting on the board of a multinational, your decisions can be scrutinised—and challenged—by regulators, employees, shareholders, or even customers. Without adequate protection, your personal assets, reputation, and professional future could be at stake.
This is where directors liability insurance—commonly referred to as officers and directors insurance or D&O insurance—becomes essential. It provides financial protection for company leaders against claims made for actual or alleged wrongful acts in their role as directors or officers. From allegations of mismanagement to breach of fiduciary duty, this form of insurance ensures leadership is shielded from costly legal battles and potential settlements.
For directors in the UK, the risk is real and increasing. Regulatory scrutiny by bodies like the FCA and HMRC is on the rise. Shareholder activism, employment claims, and insolvency-related litigation are now part of the business landscape. Directors liability insurance doesn’t just defend your position—it allows you to lead confidently, knowing that you’re protected from personal financial ruin.
In this comprehensive blog, Salam Immigration breaks down what you need to know about D&O insurance in the UK: how it works, what it covers, what it doesn’t, who needs it, and how to choose the right policy for your organisation.
What Is Directors Liability Insurance?
Directors liability insurance is a specialist form of cover designed to protect the personal assets of company directors and senior officers against claims brought for wrongful acts committed in the execution of their duties. These “wrongful acts” can include actual or alleged errors, omissions, misstatements, breaches of duty, negligence, or breaches of trust.
In the UK, directors can be held personally liable under various legal and regulatory frameworks—such as the Companies Act 2006, employment law, health and safety regulations, data protection law, and even insolvency legislation. This means that if a claim is brought against a director, they could be forced to pay for legal defence, compensation, or settlement costs out of their own pocket.
Directors liability insurance prevents this. It steps in to cover the costs associated with defending these claims, as well as any damages awarded—provided they aren’t due to deliberate fraud or criminal conduct.
There are typically three main components (or “sides”) to a D&O insurance policy:
- Side A: Covers individual directors and officers when the company cannot indemnify them.
- Side B: Reimburses the company when it has indemnified directors or officers.
- Side C (Entity Cover): Provides limited protection for the company itself, particularly in relation to securities claims.
These policies are structured to ensure both the individuals and the organisation are protected in complex legal scenarios.
Why Directors Liability Insurance Is Crucial for UK Business Leaders
The UK legal and regulatory environment places a heavy burden on directors and officers. They are expected to act with due care, in good faith, and in the best interest of the company at all times. Yet even with the best intentions, mistakes or misjudgements can happen—and when they do, the consequences can be severe.
1. Increasing Regulatory Scrutiny
UK regulators such as the Financial Conduct Authority (FCA), Information Commissioner’s Office (ICO), and Health and Safety Executive (HSE) have significantly stepped up enforcement in recent years. Directors can be investigated and held accountable for failing to meet obligations around data protection, workplace safety, financial disclosures, and more.
Even if a director is ultimately cleared, the investigation process can be long and expensive. Directors liability insurance covers legal defence costs from day one, removing a major source of stress and financial risk.
2. Claims from Shareholders, Employees, and Competitors
Allegations of poor financial performance, unfair dismissal, harassment, mismanagement, or breach of fiduciary duty are increasingly common. Shareholders may sue directors if they believe company value was harmed by their decisions. Employees can take action for discrimination, whistleblowing retaliation, or wrongful termination. Competitors may allege anti-competitive behaviour.
In all these cases, officers and directors insurance ensures that individuals don’t bear the cost personally, even if the company is unwilling or unable to provide legal support.
3. Cybersecurity and Data Breach Liability
A growing area of concern is accountability for cybersecurity incidents. Directors can be held responsible for failing to implement adequate controls or respond effectively to data breaches. The UK GDPR framework places significant compliance responsibilities on senior leadership. Without executive liability insurance, directors could face claims from regulators or customers whose data was compromised.
4. Insolvency and Wrongful Trading
When a company faces insolvency, directors are exposed to heightened personal risk. Under UK law, if directors continue trading while knowing the company cannot avoid insolvency, they can be held personally liable for worsening creditor losses. Insolvency practitioners may investigate directors’ conduct and pursue legal action.
Having directors liability insurance in place before signs of distress emerge can provide critical support in defending against these claims.
5. Peace of Mind and Better Talent Retention
For growing businesses and startups, D&O cover is often a condition for securing senior leadership or attracting board members. No experienced executive will accept a directorship without it. By providing this insurance, companies show they take governance seriously and protect their leadership team—an increasingly important factor for recruitment and retention.
What Does Directors Liability Insurance Cover?
A well-structured directors liability insurance policy offers broad protection, but it’s important to understand what it typically includes and excludes. Knowing this helps directors manage their risk and avoid gaps in coverage.
Core Coverage Areas
- Legal Defence Costs
Covers the cost of hiring solicitors, barristers, and other legal professionals to defend against claims. These costs are covered from the moment a claim is made—even if the director is eventually found not liable.
- Investigation Costs
Responding to official investigations (e.g., from the FCA, HMRC, or HSE) can be financially draining. D&O policies often cover the cost of preparing for and responding to regulatory inquiries.
- Settlements and Damages
If a claim results in financial damages, compensation payments, or a legal settlement, directors liability insurance will usually cover these amounts—so long as they’re not related to fraud or wilful misconduct.
- Employment Practices Liability
Some policies include coverage for claims related to unfair dismissal, discrimination, harassment, or retaliation—especially those targeting individuals rather than the company as a whole.
- Civil Fines and Penalties (Where Insurable by Law)
In limited circumstances, D&O insurance may cover certain regulatory fines or penalties if the law allows it. In the UK, this varies depending on the nature of the fine and the regulatory body involved.
- Public Relations and Crisis Management Support
Reputational damage can be just as harmful as legal liability. Some insurers include access to PR consultants or crisis communications teams to help manage fallout from allegations or media coverage.
- Outside Directorships
Directors serving on the boards of outside entities (e.g., subsidiaries or joint ventures) may be covered for claims arising from their involvement with those organisations, provided they’re acting in an official capacity.
What’s Usually Excluded
No policy offers blanket protection. Common exclusions include:
- Fraud or criminal conduct proven in court
- Deliberate breaches of law
- Claims covered by other insurance (e.g., professional indemnity or cyber insurance)
- Prior known claims or circumstances
- Insolvency-related claims after a specific date if the policy lapses or is cancelled
Every company should review their D&O policy wording closely and discuss with a broker to ensure the level of cover aligns with the organisation’s specific risk profile.
Who Needs Directors Liability Insurance?
There’s a common misconception that only large corporations need directors liability insurance. In truth, any individual in a leadership position within a registered UK company could face personal liability. That includes:
1. Executive Directors
As those making day-to-day strategic and operational decisions, executive directors carry significant legal exposure. Decisions around finance, compliance, employment, and risk management can all lead to claims—even years after they’ve left the company.
2. Non-Executive Directors (NEDs)
NEDs may not be involved in daily operations, but they are equally accountable under UK law. Their role in oversight and governance doesn’t shield them from legal action. In fact, when things go wrong, non-executives are often scrutinised for what they didn’t do.
3. Company Secretaries and Officers
Individuals with formal officer roles, such as company secretaries or senior compliance managers, may be targets of regulatory investigations or civil suits. Many D&O policies include these roles within the scope of cover.
4. Trustees and Board Members of Charities or Not-for-Profits
Leadership of charitable or non-profit organisations is not immune from personal legal risk. Trustees can face claims around financial mismanagement, safeguarding, or governance failures. Directors liability insurance is often essential for charity boards.
5. Start-Up Founders and SME Directors
Smaller companies often overlook D&O insurance, assuming it’s a concern only for big firms. However, SME directors may face claims from investors, former employees, or creditors—particularly if the business fails or attracts attention from regulators. In fact, start-ups may have more risk, not less, due to lean compliance functions.
6. Public Sector and Educational Leaders
Those in leadership within academies, councils, and other public bodies can also be personally sued for wrongful decisions. Tailored D&O policies are available for public sector leadership roles.
How Much Does Directors Liability Insurance Cost in the UK?
The cost of directors liability insurance varies significantly based on multiple factors. Unlike some business insurances, D&O cover isn’t sold in fixed packages. Premiums are calculated according to the company’s size, industry, risk profile, and claims history.
Key Factors Influencing Cost
- Company Size and Turnover
Larger organisations tend to face higher premiums due to greater exposure. However, start-ups and fast-growing companies may also see higher rates due to a perceived lack of internal controls or governance maturity.
- Industry Sector
Some sectors—such as finance, healthcare, energy, and technology—face heightened regulatory scrutiny or complex risk environments. These attract higher premiums due to the likelihood and severity of claims.
- Claims History
If your company or any of its directors has a past record of legal or regulatory claims, insurers will factor this into pricing. A clean claims history will generally reduce the cost.
- Policy Limits and Coverage Scope
The higher the coverage limit you select, the more expensive the policy. Many UK companies opt for limits ranging from £500,000 to £5 million, depending on risk appetite. Policies that include extras like entity cover or crisis PR will also cost more.
- Number of Insured Individuals
More directors and officers being covered = higher cost. However, group policies for a full leadership team tend to offer better value than purchasing cover individually.
- Geographic Reach
Companies operating internationally or in jurisdictions with aggressive legal systems (e.g., the US) will face increased premiums.
Average Premium Benchmarks
- Small businesses & start-ups: From £500 to £1,500 per year for basic coverage.
- SMEs with some risk exposure: Between £2,000 and £5,000 annually.
- Mid-sized firms or regulated businesses: £5,000 to £15,000+ annually.
- Large corporations or multinationals: Premiums can exceed £50,000, depending on complexity.
It’s important to note that the cost of not having D&O insurance—should a claim arise—can far exceed the annual premium. Even modest legal actions can quickly escalate to tens or hundreds of thousands of pounds in defence and settlement costs.
What to Look for When Choosing a Directors Liability Insurance Policy
Not all directors liability insurance policies are created equal. The quality of your cover depends not just on the insurer, but on how well the policy aligns with your company’s specific risks and governance structure. Here’s what to evaluate when selecting the right D&O policy in the UK.
1. Breadth of Cover
Make sure the policy explicitly covers:
- All directors, officers, and relevant senior staff
- Past, present, and future claims (where retroactive cover is included)
- Investigations and regulatory inquiries (not just lawsuits)
- Legal defence costs from the outset of a claim
- Costs arising from reputational damage
Tip: Look for “all-risk” wordings that cover any wrongful act unless specifically excluded.
2. Retroactive Date and Run-Off Cover
Ensure the policy has a broad retroactive date, ideally “unlimited”, so it covers acts that occurred before the policy start date. This is especially important if you’re changing insurers or buying cover for the first time.
Also consider run-off cover, which protects directors after they leave the business or after the company is sold or dissolved. Claims can still arise years after a director has stepped down.
3. Exclusions and Limitations
Watch out for exclusions that could create unexpected gaps:
- Insolvency exclusions (some policies exclude claims during insolvency unless negotiated)
- Claims brought in certain jurisdictions (e.g. USA or Canada)
- Claims arising from prior known issues
Scrutinise any vague terms that could allow the insurer to deny a claim.
4. Policy Limits and Excess
Consider both aggregate limits (total claims in a year) and per-claim limits. If your organisation operates in a high-risk sector or has multiple board members, consider a higher coverage limit to prevent erosion of funds after the first major claim.
Also review the excess (deductible) that must be paid before cover kicks in. These vary between £1,000 and £25,000 depending on the risk profile.
5. Claims Handling Experience
Choose an insurer or broker with a strong track record in handling D&O claims, especially in your sector. The speed and efficiency of claims support can make a major difference when under regulatory or legal pressure.
6. Customisation and Extensions
Your business may benefit from tailored extensions such as:
- Employment practices liability
- Cyber liability carve-backs
- Entity cover for the company
- Outside directorships cover
- Crime and fraud protection add-ons
Common Myths About Directors Liability Insurance
Despite its importance, directors liability insurance is often misunderstood. These myths can leave leaders dangerously exposed or underinsured. Let’s break down some of the most persistent misconceptions in the UK market.
Myth 1: “We’re a Small Business — We Don’t Need It”
This is one of the most harmful assumptions. In fact, small businesses are often more vulnerable. They may not have in-house legal teams or comprehensive governance frameworks, making directors easier targets for litigation. Claims can arise from ex-employees, investors, suppliers, or regulators—even in companies with fewer than ten employees.
Myth 2: “The Company Will Cover Any Legal Costs”
While a company may indemnify a director, this assumes the company is both willing and financially able to do so. In insolvency, that protection disappears. And in some cases, UK law prohibits indemnification—especially in regulatory or criminal matters. Directors liability insurance ensures you’re not relying on uncertain support.
Myth 3: “I’m Not Involved in Day-to-Day Operations”
Even non-executive and advisory roles carry risk. Under UK law, all directors have duties of care, skill, and diligence. If you’re on the board—even in a part-time or passive capacity—you’re liable for failures of governance or oversight. You can be sued for what you didn’t do, just as much as for what you did.
Myth 4: “It’s Too Expensive for What You Get”
Many directors underestimate the value of cover until a claim hits. Legal fees alone can run into the tens of thousands of pounds. Settlements or regulatory penalties can exceed that many times over. In contrast, D&O premiums are relatively modest, especially for SMEs. For the peace of mind and financial protection offered, it’s one of the most cost-effective policies available.
Myth 5: “We’ve Never Had a Claim — So We’re Safe”
A clean track record is no guarantee of future immunity. As businesses grow or become more visible, the risk of claims increases. Employment disputes, data breaches, investor disagreements, and government audits can arise without warning. Insurance is not for what’s already happened—it’s for what could.
Myth 6: “I’m Covered by General Business Insurance”
General commercial insurance (like public liability or professional indemnity) won’t cover claims made against individuals in leadership roles. Those policies protect the business, not its decision-makers. Directors liability insurance is the only policy that directly defends personal assets.
Frequently Asked Questions
What is directors liability insurance?
Directors liability insurance is a type of cover that protects company directors, officers, and board members from personal financial loss resulting from claims made against them for alleged wrongful acts in their official roles. This includes legal costs, settlements, and compensation payments.
It is essential for shielding personal assets and supporting the legal defence of directors facing regulatory investigations or civil litigation.
Who needs directors liability insurance in the UK?
Anyone serving in a leadership capacity—including executive directors, non-executive directors, company secretaries, and trustees—should have directors liability insurance. It is relevant across all sectors, from private companies and charities to public bodies and startups.
Even if you’re not involved in daily operations, UK law still holds you accountable for oversight responsibilities and fiduciary duties.
What does directors liability insurance typically cover?
Directors liability insurance commonly covers:
- Legal defence costs
- Settlements and damages
- Regulatory investigations
- Employment-related claims against directors personally
- Mismanagement or breach of fiduciary duty claims
- Reputational support and crisis PR
It does not cover fraudulent or criminal acts once proven, fines prohibited by law, or claims from known issues predating the policy.
How is directors liability insurance different from professional indemnity insurance?
Professional indemnity insurance protects a company or individual against claims of negligence in the service they provide. In contrast, directors liability insurance protects the individuals in leadership roles from claims related to their decision-making responsibilities.
In short: PI insurance covers your business conduct; directors liability insurance covers your leadership conduct.
How much directors liability insurance do I need?
Coverage limits vary, but most UK SMEs opt for £500,000 to £5 million in protection. Consider the size of your organisation, your industry’s risk level, whether you’re regulated, and how many directors are being insured.
A broker can help assess the right level of directors liability insurance based on your risk exposure and budget.
When should a company purchase directors liability insurance?
The best time to purchase directors liability insurance is before any claims arise. Coverage must be active when a claim is made—not just when the alleged act occurred. For founders, board members, and newly appointed directors, it should be in place from day one of assuming responsibility.
Does directors liability insurance cover former directors?
Yes, a quality directors liability insurance policy will include run-off cover for directors after they resign or retire. This is crucial because claims can be brought years after a director has left the business. Some policies include run-off protection by default; others may require a specific extension.
Is directors liability insurance tax-deductible in the UK?
Yes, for limited companies, the cost of directors liability insurance is generally considered a legitimate business expense and can be deducted from corporation tax—provided it is wholly and exclusively for the purpose of the business.
It is not a personal tax deduction for the individual directors.
Will directors liability insurance protect me during insolvency?
Yes—but only if the policy is in place before the company becomes insolvent. During insolvency, directors are under intense scrutiny. Claims may arise from creditors, insolvency practitioners, or regulators for wrongful trading or mismanagement.
Directors liability insurance can help defend against these claims, but it must be active before insolvency proceedings begin.
Can shareholders sue directors — and does D&O cover this?
Yes, shareholders can and do sue directors, especially in cases of financial mismanagement, false statements, or breaches of fiduciary duty. Directors liability insurance will typically cover legal defence and settlement costs for such claims, provided they relate to duties performed in good faith.
What happens if the company changes ownership?
In a merger or acquisition, your existing directors liability insurance may become void or trigger changes in coverage. It’s vital to arrange run-off cover for the outgoing board and establish a new D&O policy for the new leadership structure.
Work with an insurance adviser before completing any transaction to ensure continuous protection.
How long does a directors liability insurance policy last?
Most directors liability insurance policies run for 12 months, with the option to renew annually. However, some insurers offer multi-year policies, especially for growing businesses or startups that want continuity.
Claims must be made and reported during the policy period for coverage to apply, unless run-off or extended reporting periods are in place.
Do charities and non-profits need directors liability insurance?
Absolutely. Trustees and leadership teams of non-profits face many of the same legal risks as corporate directors—such as safeguarding failures, mismanagement of funds, or regulatory breaches. Directors liability insurance is vital to protect the individuals serving those organisations.
Secure Your Directors Liability Insurance Today.
At Salam Immigration, we understand that protecting your leadership goes beyond good governance. It means taking proactive steps to shield your directors, secure your organisation, and ensure confident decision-making at every level.
Don’t leave your leadership team exposed. Let Salam Immigration help you find a directors liability insurance policy tailored to your business size, sector, and risk profile
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