Protecting decision-makers with D&O insurance

With businesses and their decision makers increasingly at risk of being sued, D&O cover offers a level of protection they may not know they needed, until it's too late. We look at three real life case studies where D&O safeguarded customers from what could have been financially catastrophic for their business.

30 September 2021

In today’s litigious society, businesses and their management teams are increasingly at risk of being sued. All it may take is a customer complaint to trigger an investigation into the company, or a disgruntled current or former employee with an axe to grind for the business to become mired in a costly, drawn-out tribunal. Competitors, regulators and even investors may also bring claims against businesses – and not just large, publicly traded ones.

Mounting a defence against legal claims can easily run into six-figure sums which can be enough to financially cripple some companies, particularly SMEs and family-run businesses that tend to have little in the way of in-house risk management infrastructure or formal controls to prevent such scenarios in the first place. Worse still, directors’ and officers’ personal assets may also be put at risk in the event of a claim. Could you afford to pay defence costs or losses relating to any action you took on your company’s behalf out of your own pocket?

That’s why Directors and Officers insurance (D&O) is vital to ensure that senior personnel have the support and freedom to make tough business decisions with confidence. RSA offers a complete suite of flexible Management Protection covers, backed by our knowledgeable Financial Risks (ProFin) claims team.

Let’s take a look at three recent case files to see how we’re protecting the interests of businesses and their decision-makers.

Negating a claim from the liquidator

Our customer had provided lending to a company to purchase and refurbish a hotel. The company that had received the funding had directors in common with the customer's business but was a separate entity. A debenture was granted by the company to the customer to secure the existing lending and any further advances made.

The company went into liquidation and the liquidator alleged that the debenture was granted in favour of our customer at a time when the company was already insolvent and they had thus been “preferred” or that the transaction was for no consideration or at an “undervalue” in breach of sections 238 and 239 of the Insolvency Act. Repayment of £1.3m was sought.

We worked with a specialist insolvency solicitor on our panel to obtain evidence to demonstrate that the company was not insolvent at the date the debenture was granted and invited the liquidator to discontinue the claim. After initial resistance from the liquidator, it was made clear we would not consider a damages settlement and an agreement was reached to discontinue proceedings on the basis that both sides bear their own costs.

Defending directors against gross negligence manslaughter

Our customer acted as demolition contractors and there was a fatality on site. Two directors were invited to attend an interview under caution in respect of potential charges of gross negligence manslaughter and breach of section 37 of the Health & Safety at Work Act.

We arranged separate representation for each director via our panel solicitors to manage the process of investigating and responding to the requests from the police/the Health and Safety Executive (HSE) in what is an extremely stressful situation for the individuals given the prospect of a custodial sentence if an adverse finding is made.

The provision of a full and robust response led to no claim being pursued against one of the directors but a prosecution is proceeding against the other. We have provided significant support to the director in addressing the allegations by way of input from solicitors, counsel and experts in advance of providing a defence at a three week hearing. The costs that will be incurred are in the region of half a million pounds.

Refuting misfeasance and wrongful trading

A claim was advanced against two directors of our customer following the liquidation of the company.  Discrepancies in the customer’s accounts indicated that the creditor levels within the original audited accounts were grossly understated and that the accounts were based on incorrect financial information provided by the directors.

The liquidator intimated that the claim exceeded £5m and was pursued under the Insolvency Act 1986 alleging misfeasance, wrongful trading and other breaches. Separate legal representation was arranged on behalf of each director and legal analysis undertaken indicated that it would be difficult to defend the position in respect of wrongful trading.

The legal analysis indicated that quantum could realistically be some way in excess of the £1m limit of indemnity. Notwithstanding, we were able to successfully advance arguments in negotiation with the liquidator to achieve a settlement at £600,000 in respect of both directors. Even factoring in defence cost spend, this was within the limit of indemnity which was an excellent result and prevented the directors from having any personal exposure to the claim. 


While such claims are rare, it pays not to be complacent – even if a company is privately held, family owned or has never been sued in the past. Employment malpractice, reporting errors, inaccurate disclosures, insolvency and regulation violations are common risk scenarios. If held liable, legal fees, settlements and financial losses can be eye-watering, and stressful claims can drag on for years.

Running a business comes with great responsibility, so consideration for D&O insurance needs to be given as a tool not just for reducing risk but also for liberating senior management to take the critical decisions that will drive business growth without fearing exposure to a diverse range of litigation risks.

Management protection insurance

Discover more on our indemnity insurance, providing management protection for Directors and Officers against personal liability and wrongful acts.