One in three small businesses do not understand the benefits of D&O cover, according to research by Zurich

More than four in ten (45%) of small businesses have no directors' and officers' (D&O) cover in place, according to research from Zurich's UK commercial business.

Head of business operations for Zurich's commercial business, David Smith, explains: " Small businesses don't seem to be aware of the personal financial risks that they face.

"It could be argued that SMEs are even more vulnerable than larger companies, because it is easier to identify a director responsible for a certain action in a small company than one in a larger organisation and a large claim could put them out of business."

Under statute law - in both the UK and Europe - there are now an ever-growing number of duties and responsibilities imposed on directors and officers - a breach of that could lead to them being prosecuted personally.

Zurich is urging brokers to work with insurers to point out the risks of not having D&O in place. One broker is embarking on just such a campaign to educate their customers about D&O cover.

BiB Insurance Group business development manager Alistair Bell, says: "Many of the business people with whom we discuss D&O insurance, aren't aware of the dangers they are open to personally.

"When we explain how, as a director or an officer of a company, they themselves can be held personally liable for the actions they take in their day to day business, even within a limited company, the insurance cover sells itself.

"The litigious times in which we live have promoted D&O cover over the last three years, from being an optional extra, to an almost essential part of the business combined offering."

Zurich says that the first step in improving understanding of D&O cover is to explain to customers just who in their business could be termed a director or an officer. The next step is to make them aware of the types of claims they could be exposed to and where they can come from.

There is no comprehensive definition of "director", although the Companies Act [1985] states that the term includes "any person occupying the position of a director, by whatever name called". Therefore, directors are identified by their duties and not their titles and the law does not distinguish between an executive and non-executive director - both face personal liability for their own wrongful acts.

Officers also have personal liability for their actions under various statutes but the term is less well defined than that of "director". The Companies Act [1985] states that an officer "includes a director, manager or secretary". It has also been said to mean a "person who is managing the affairs of a company as a whole".

Claims can come from any of the following:

  • shareholders, or other directors may bring a claim against them if they consider they have acted incorrectly in their capacity as a company director
  • employees
  • competitors
  • regulators or the police (for criminal offences)
  • receivers/administrators on behalf of creditors alleging wrongful trading
  • libel and slander can also be a source of claims in acrimonious disputes.