Written by: Griffiths & Armour on: 28 Apr 2023

Do SMEs need D&O Insurance? | Griffiths & Armour

Do SMEs need Directors’ and Officers’ insurance?

A multitude of factors have resulted in heightened risks for businesses, with small and medium-sized enterprises (SMEs) not exempt. The increasing risk landscape has the potential to be even more devastating to SMEs, as they may not have the same resources available or the insurance coverage obtained by larger firms.

All organisations, ranging from public, private and not-for-profit companies can have claims made against their directors and officers, meaning that Directors’ and Officers’ (D&O) insurance is an important consideration for any business, regardless of its size.

Any business can make a mistake, which highlights the importance of having a quick and reliable contingency plan to protect your directors and officers. D&O claims can be stressful for a firm, which may distract the leadership team from running the business efficiently if they do not have the right insurance protection in place.

What does a D&O policy cover?

A D&O insurance policy protects past, present and future directors and officers of a firm. D&O covers litigation or investigation which may arise from alleged poor decision making or questionable conduct.

Technically, the policy covers claims which arise from wrongful acts. Wrongful acts can be defined as an actual or alleged act, error or omission, misstatement, misleading statement or breach of duty.

Are SMEs an easy target for lawsuits?

Due to budget constraints, SMEs often do not invest in in-house legal representatives, which can leave a gap in knowledge compared to their larger counterparts. If an SME is sued for wrongful acts, the costs of litigation can be insurmountable. A large company can likely recover from this, whereas an SME may struggle to ever regain its financial stability. It can also provide protection against errors such as negligence and unrealistic promises to investors.

What are some additional benefits for SMEs that purchase D&O insurance?

If an SME is seeking investors, it is essential that they have a D&O insurance policy in place, as they seek to decrease the risk of their venture. It also improves an organisation’s credibility, and highlights that the business wants to safeguard the interests of its board of directors. This in turn, will make it easier to acquire talent to the firm, who feel empowered to make decisions without facing the repercussions that can arise from claims made against them.

What isn’t covered by a D&O policy?

D&O insurance does not cover claims brought against the whole organisation and only protects against claims made against individuals for alleged wrongful acts carried out in their position as a director or officer.

Claims for bodily injury and property damage are not covered by a D&O insurance policy, these are more appropriate within the scope of an Employers Liability or Public Liability policy.

Griffiths & Armour Client Services Director, Martin Hawken discusses additional coverages that are often purchased alongside D&O insurance in the video linked below.

It is highly recommended that SMEs consider obtaining D&O insurance to help protect their business and its leaders from potential liabilities. Our specialist team can discuss your individual business needs and provide tailored recommendations to protect your directors and officers.

If you need more help or information, click below to get in touch with our team of specialist brokers, who will be in touch shortly.

Martin Hawken | Griffiths & Armour