Insight

Non Executive Directors – would you want to be the last to know that you have no insurance?

5 February 2025
Insight

Non Executive Directors – would you want to be the last to know that you have no insurance?

somebody writing notes on a ipad

Let’s be honest, being at the top can be tough, information from the ground up can take a while to make its way to your attention and can sometimes come too late. When things go sideways, fallout can be costly for NEDs (Non-Executive Directors), who are sometimes left financially vulnerable and facing legal costs. To give more of an insight into why D&O insurance is so important to NEDS, we asked our Director Peter Warburton (and Vista’s fountain of knowledge) for his take on why the right over is so important…

NED Buyers Beware

I was with a friend six months ago who had sold his business and was looking for challenges elsewhere. I had provided insurance advice for him and his business for more than twenty years and so he naturally asked me about any risks for him if he becomes a NED. It was an easy one to answer. A NED is not a statutory title, it is almost exactly the same as being a Director. I say almost because there are a few extra risks on top.

Front and centre I told him he needs to have Directors and Officers Liability. “I will make sure I have cover in place at the company I join” he replied. “Good idea”, I said “but be careful. Unless you get me in as broker for each company (which I thought was a really good idea) you cannot be sure that the policy will cover you and you don’t want to be dipping in to that hard earned nest egg to pay legal fees.”

There were two key issues I highlighted for him (there are many more including limits that are too low and cover being lapsed or invalidated)

Insolvency and Health and Safety – yes, there is serious risk of personal liability

There are two areas that tend to cause more concern than others – insolvency events and health and safety. When it comes to both, there is scope for personal liability, In the case of insolvency, your duties as a NED will also shift to include managing the interests of the creditors. There’s no doubt that if a business is going through this, they will turn to you for advice.

Similarly, with health and safety legislation, as a Director, you will be expected to show ‘consent, connivance or neglect’. My friend was not aware that many D&O policies have insolvency exclusions and will exclude claims arising out of bodily injury. What he really needed was a policy in his own name with his own limit and covering all his board positions. One that is completely in his control. I set about finding a solution. But more of that later.

What else is there to consider when it comes to D&O cover?

It’s no surprise that D&O cover is important to provide the funds for defending shareholder claims. Again, it all comes back to the idea that with you being at the top, you are first in the firing line, especially when investors go looking for someone to blame when they suffer a loss. In the UK, there is no limit to your personal liability as an NED when joining a board. This unlimited risk means that potentially all your assets could be at risk every single day you go without cover. Starting to see the gap here? Understandably, a lot of actions against directors are hidden from view. Most will be settled before reaching court and the public domain.

This leaves many directors ill informed about the risks and potential remedies and where to go for the right advice. Particularly where matters become adversarial with other board members, NED’s navigating these claims often find themselves in a daunting and solitary predicament. Having access to the right advisers and sufficient insurance funds to pay for them is vital. Fortunately, our team have been placing D&O coverage and handling claims for more than 25 years. We are an insurance specialist well versed in both the process of securing protection that won’t let you down and in ensuring you are carefully guided through the claims defence process.