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Directors Liability insurance is a benefit in kind which you don’t get taxed for, but is a really important type of insurance for any company director to have!

Directors commonly think that if something goes wrong then either a) the business will pay for it or b) they can close the business down and walk away.

But this isn’t always the case. For starters, in many cases the law now allows Government bodies, suppliers and customers to go around the limited company protection and sue the director personally.

Let us give you a genuine example. A few years ago, Prizm Solutions insured a garage in Walsall. The garage serviced a vehicle tail lift which clearly showed a maximum weight of 1 ton. The day after, the truck driver put a TWO ton weight on it and it collapsed, directly onto his foot which was chopped off!

The Health and Safety Executive got involved, and insisted on a meeting with the Managing Director at their offices in Birmingham. The meeting would be recorded under the Police and Criminal Evidence Act, which the MD would have to fund himself, as the company was being sued separately.

Fortunately, this was fully covered under his Directors Liability Insurance. And it was a good job it was, because, despite them having done nothing wrong, the legal costs were over £25,000 (and this was a decade ago!).

Another famous example involved a company going into liquidation. A few days before, the director wrote a cheque to a supplier but got the supplier’s business name wrong. The bank refused to cash it, the company then went into liquidation and the director was successfully sued personally for the value of the cheque (which fortunately, his Directors policy then paid).

But what if you’re not a director? Can you still be sued? The answer is yes. The law allows affected parties to sue anyone in a position of authority, which is why this type of insurance is better known as Management Liability Insurance. 

Another infamous example involved a Transport Manager who knowingly allowed his drivers to exceed their working hours. When an accident happened involving driver fatigue, this came up, and the Transport Manager was personally sued for his actions.

At Prizm Solutions, we regard Management Liability Insurance as a key business insurance for limited companies, as most claims arise because of the company ceasing to trade. That’s why insurers prefer to see a healthy set of company accounts before they are willing to quote. 

Premiums can start as low as £250 per annum, although they can be significantly higher depending on the size of the business, what the organisation does and if they have had any previous claims.

If you want a chat about this type of insurance, please get in touch. We are specialist business insurance brokers and we deal with things like this every day!