Why is directors and officers insurance necessary for electrical contractors?

With the growing potential of action against directors and officers,[1] is Directors and Officers (D&O) insurance for electrical contractors necessary protection or an avoidable cost?

Directors and key managers of electrical contracting businesses have essential and complex roles. Each day brings different challenges and decision-making, which may present risks to your professional reputation and your business. Sparks will fly if you're accused of wilfully carrying out a wrongful act during your duties.

Wrongful acts include:

• Breach of trust
• Breach of duty
• Neglect
• Error
• Misleading statements
• Wrongful trading.[2]

Many claims could be made against you as a director or a key manager. For example, you could be accused of knowingly disregarding health and safety regulations or being negligent in your daily duties. In that case, you may face significant costs in resolving the matter and legal fees defending yourself. Legal claims are expensive, and with your reputation on the line, they can even cost your business valuable contracts.

Directors and key management staff who are not insured face a greater risk of not being able to defend themselves against serious claims. They could be disqualified from holding director positions in future, face high financial costs from civil proceedings and the following awards and damages or face criminal prosecution with the potential for fines and even imprisonment.

How Directors and Officers insurance protects electrical contractors

This is where D&O insurance comes in. While your business may be covered against claims through public liability and other electrical contractors' insurance, as a director or manager, you will have to pay the cost of any legal defence, awards or settlement payments that occur because of the claims made against you. Knowing that you have D&O insurance to take care of these costs in these stressful situations will help give you valuable peace of mind.

A D&O policy is designed to cover costs associated with defending trading standards, environmental or other regulatory claims against you. It may also cover expenses related to admin and criminal proceedings as well as investigations by regulators or criminal prosecutors and claims made by or brought in relation to:

• Regulators, shareholders or investors, for example, failing to act in the company's best interests
• Creditors
• Breach of European legislation.[2]

This cover is usually arranged on a 'claims made' basis, which means you are covered for any claims made during the insurance period, regardless of when the event occurred.

Arranging Directors and Officers cover

While D&O insurance isn't a regulatory requirement, and in the current economic climate where businesses are looking to reduce costs, this cover is worth considering to protect against the risks you face as directors and officers.

It's essential first to establish who needs to be included in the policy. Some policies cover current, future and past personnel. As with many insurance policies, there are exclusions, so it's important to consult with your insurance broker. They will work with you to understand your individual needs and arrange the most appropriate D&O cover based on your needs, at a competitive price in the market.

_{1 https://www.marshcommercial.co.uk/articles/directors-and-officers-series-three/}

_{2 https://www.abi.org.uk/products-and-issues/choosing-the-right-insurance/business-insurance/liability-insurance/directors-and-officers-liability-insurance/#:~:text=Directors'%20and%20officers'%20liability%20insurance,breach%20of%20duty}