Protecting your trustees (& charity leaders) – an introduction to D&O cover

While many organisations focus on the cost of their D&O policy, understanding the scope of the policy is critical.
trustees and leaders

We have established the value that trustees bring and some of the responsibilities they have. Protecting your trustees from claims against them or your organisation is an important facet to consider in managing risk within your charity.

The applicable UK law highlights the responsibilities of trustees and senior management and emphasises the fact they can be held personally liable as a result of their own errors or omissions or those of their fellow directors and officers. Legal defence costs for claims against trustees, directors and officers can run well into six figures, leaving an organisation at financial risk. For this reason, D&O (directors & officers) cover has become a key component of most organisations’ insurance programmes.

Claims can be brought for a range of reasons including any of the below committed by trustees or member/s of your senior leadership team:

  • actual instances or allegations of wrongful acts
  • errors or omissions
  • negligence
  • breach of duty

Some organisations which are limited liability entities have been wrongly informed that their directors can’t be held personally liable. This limited liability only applies to debts in the event the organisation goes into administration. There is a range of scenarios that are commonly misidentified as being covered under a D&O policy, but for which no cover exists. These include:

  • Allegations or incidents of fraud/theft (covered by crime/fidelity insurance).
  • Failure to pay monies owed to a third party under a contract. (Some policies will cover the personal liability of directors to creditors in the event the organisation is declared insolvent and wrongful trading occurred).
  • Failure to deliver services to a third party under a contract.
  • Poor commercial decisions, for example, overspending on a project.

The two key aspects of D&O cover:

  • Cover for the organisation: covers the entity for claims brought against it for the wrongful or negligent act of a senior leader.
  • Cover for individuals: covers individual senior leaders for claims brought against them in a personal capacity for the wrongful or negligent act of a senior leader.

Who can bring a claim against you?

Claims against directors and officers are becoming increasingly common. Donors, service users, members, tenants, current or former employees/trustees, regulators, partner organisations, creditors and suppliers can all bring legal actions against individual directors or against the organisation and its directors.

In recent years there has been a major shift as senior leaders have been held more accountable by their fellow employees, service users and government bodies for organisational failings. As a result, stakeholders have begun taking increased legal action against individual leaders within organisations rather than, or in addition to, the organisation as a whole when incidents occur.

Know what you’re being covered for

Due to the size of claim settlements, the number of insurers offering cover to the sector is shrinking and market rates for D&O cover are increasing. Your charity’s size, operations, risk management and claims history will also influence the price of D&O cover for your organisation.

While many organisations focus on the cost of their D&O policy, understanding the scope of the policy is critical. The type of cover and exclusions which can apply as laid out in Access’ full guide here, have a significant impact on the price of your D&O policy.

Invest in risk management

Now more than ever, it’s vital to invest in robust D&O risk management processes and provide documentation of these practices to your insurer upon renewal time. Your risk management documentation should highlight:

  • Proper financial practices and cash flow controls
  • Seamless contracts with stakeholders
  • A continuity plan, cyber-incident response plan and risk assessment
  • Robust internal policies to mitigate on-site risks and ensure regulatory compliance

Access Insurance Services

Access Insurance Services serve as the editors of this publication and curate articles together into the monthly issues. They provide bespoke insurance advice to the not-for-profit sector. Their customer-first approach helps their clients get quality advice, insurance that covers each risk, assistance in claims and helps save costs.

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