D&O insurance for non-executive directors: what to check

Because limited liability protects shareholders, not directors. A non-executive director carries the same statutory duties as an executive one and the same personal exposure. Claims can come from shareholders, regulators, employees, creditors, insolvency practitioners or other third parties, and they attach to your decision-making rather than to the company's assets.

The exposure is not theoretical, and the most common trigger is insolvency. When a company fails, an insolvency practitioner examines the conduct of its directors, and the questions asked are about what the board knew and when. A non-executive who attended eight meetings a year is squarely within scope.

And the company's own indemnity may not help. Section 232 of the Companies Act 2006 voids most provisions purporting to exempt a director from liability to the company. A qualifying third-party indemnity under section 234 is permitted, but it cannot cover fines, regulatory penalties, or the defence costs of a criminal case you lose. An insolvent company also cannot pay an indemnity it has promised.

Policies are written in three parts, and knowing which one protects you is the most useful thing here. Side A covers the director directly: it pays your defence costs and any insurable award where the company is unable or not permitted to indemnify you. It is the part that responds in insolvency, and the part standing between a claim and your personal assets.

Side B reimburses the company where it has lawfully indemnified its directors. It protects the balance sheet, not you. Side C covers claims against the company itself, which is more common in listed contexts and largely irrelevant to a seed-stage board.

Cover typically extends to defence costs for investigations, regulatory interviews and disqualification proceedings — but only if the wording says so. Check.

Fraud, dishonesty and deliberate wrongdoing. Most wordings advance defence costs until dishonesty is established by final adjudication or admission: confirm that carve-back is present, because without it an allegation alone can leave you funding your own defence. Fines and criminal penalties are uninsurable in the UK on public policy grounds, though defence costs are a separate matter and generally are covered.

Bodily injury and property damage belong to public and employers' liability. Professional advice or services provided to clients belong to professional indemnity, which covers what you advised rather than how you directed the business. Personal guarantees and directors' loan accounts are contractual debts rather than wrongful acts — though allegations of preferring a creditor or misapplying company assets do sit inside the cover. And circumstances known before inception and not disclosed: non-disclosure is how a policy that looked adequate turns out not to respond.

Ask for the policy schedule and the wording, not a broker's summary. Then: what is the limit of indemnity, and is it per claim or aggregate? Most are aggregate, so three claims in a year share one limit. Does the policy survive insolvency? Some terminate on the appointment of an administrator, the precise moment you need it, so this is the most important question on the list. Is there a separate additional limit for non-executive directors? Robust programmes include one, typically up to £1 million per director for a single claim; without it, executives with larger exposures can exhaust the limit before your defence begins.

Does it cover investigation costs — regulatory interviews, information requests, dawn raids — which arrive long before any formal claim? Does it cover defending disqualification proceedings? What is the run-off provision: claims often arise years after the conduct, so run-off cover after you resign, ideally six years to match the limitation period, is what protects you once you have left. This is the check non-executives most often miss.

Is there an allocation or severability clause, so that one director found dishonest does not void the whole policy? Who controls the defence? And when does it renew, and who tells you if it lapses? A policy that quietly expires is worse than none, because you thought you had one.

It adds a second exposure rather than increasing the first. Your liability as a director is identical whether or not you hold shares: D&O responds to wrongful acts in the role, not to your position on the cap table. What changes is that you have two things at risk — personal liability, and invested capital.

That makes the check more important, not less. A company without adequate cover is asking you to expose both. Two practical additions if you are investing: confirm the shareholding is declared as an interest on appointment and recorded in the register of interests, and agree a written dealing policy covering when you may buy or sell.

If you are weighing an appointment that comes with an investment, whether a non-executive director should invest in the company they advise covers the governance position and the conflicts to manage. For what the role involves in practice, see what a non-executive director does at a seed-stage company.