What Insurance Do Non-Executive Directors Need?

By Adrian Lawrence FCA, founder of NED Capital · Part of the Board Governance Hub

A non-executive director is a director in the full legal sense, owes the company the same statutory duties as any executive, and can be held personally liable for a breach — sued by shareholders, pursued by a liquidator, or investigated by a regulator. That personal exposure is exactly why insurance matters. The good news is that the answer to “what insurance does a NED need” is more focused than a long list of policy types suggests: for the overwhelming majority of non-executive directors, one policy does the essential work — and the important task is checking it is adequate rather than buying more.

This guide explains why D&O insurance is the policy that matters, how it is structured, how it interacts with the company’s indemnity, and the specific gaps a NED should check before accepting an appointment.

D&O Insurance: The Policy That Matters

Directors’ and officers’ liability insurance is the cornerstone of a non-executive director’s protection. It covers the legal defence costs, settlements and damages that can arise when a director is sued or investigated for an alleged wrongful act carried out in their capacity as a director — breach of duty, negligence, misstatement, or a regulatory failing. Crucially, it is arranged and paid for by the company, not the individual: a NED should not need to buy their own cover, and if a company does not carry D&O insurance, that is itself a warning sign about how seriously it takes governance.

Why does this matter so much for a non-executive specifically? Because the exposure is real and the sums involved can be severe. A NED of a company that fails can be pursued personally by a liquidator, named alongside the executives in a shareholder claim, or required to fund their own defence in a regulatory investigation — and legal costs alone can run into six figures long before any question of liability is settled. Without D&O cover, those costs fall on the director’s personal assets. With it, the director can discharge the role without the constant risk of personal financial ruin hanging over every decision.

How D&O Cover Is Structured: Side A, B and C

A D&O policy is usually built from three parts, and understanding them tells a NED exactly what protects them and when.

Side A protects the individual director directly. It responds when the company cannot or will not indemnify the director — most importantly, when the company is insolvent, or where the law prevents the company from indemnifying (for example, certain claims brought by the company itself). This is the part of the policy that matters most to a non-executive, because it is the safety net that holds when the company behind you has failed — precisely the moment personal exposure is greatest. A NED should always confirm the policy includes robust Side A cover.

Side B reimburses the company when it has indemnified its directors — it protects the company’s balance sheet rather than the director, but it is what allows the company to stand behind its directors in the first place.

Side C, or entity cover, insures the company itself against certain claims (commonly securities claims for listed companies). It matters less to the individual NED, but it can affect how much of the policy limit is available to directors if a large entity claim erodes it — a reason to check the limit is adequate for everyone it covers.

Insurance Versus the Company Indemnity

Directors are often given a contractual indemnity by the company — a promise to cover their liabilities and costs. This is valuable, but it is not a substitute for insurance, for two reasons. First, an indemnity is only as good as the company standing behind it: if the company is insolvent, the indemnity is worthless precisely when it is needed most, whereas an insurer with Side A cover still pays. Second, UK company law limits what a company may indemnify — it cannot, for instance, indemnify a director against liability owed to the company itself, or against most fines. Insurance fills those gaps. A prudent NED wants both a company indemnity and D&O insurance, understanding that each covers ground the other does not.

The Gaps Every NED Should Check

Because the company arranges the policy, the non-executive’s job is due diligence — confirming, before accepting the role, that the cover actually protects them. The questions that matter most:

Is the limit adequate? The policy limit should be realistic for the size and risk profile of the company and the number of people it has to cover. A limit that looks generous can be quickly exhausted by a single major claim, particularly where entity cover shares the same limit.

Is there run-off (tail) cover? This is the gap most often overlooked and most important to a NED. Claims frequently surface years after the events that gave rise to them — often after a director has left the board. A standard policy generally only covers directors while they serve and while the policy is live; run-off cover extends protection for claims made after a director departs or after the company is sold or wound up. A NED should confirm run-off arrangements are in place, because the period after leaving is exactly when a claim from their tenure may arrive.

Does it cover investigation and regulatory costs? A great deal of a director’s real-world exposure is the cost of responding to a regulatory investigation, even where no wrongdoing is ultimately found. The policy should cover the legal costs of investigations and regulatory proceedings, not only defence against formal claims.

What are the exclusions? Every D&O policy excludes fraud and dishonesty — cover cannot protect deliberate wrongdoing, and nor should it. But a NED should understand the other exclusions and check for anything that would leave a genuine gap, such as narrow definitions or prior-claims carve-outs. Reading the policy, or having it reviewed, before accepting the role is time well spent.

What About Other Policies?

A NED will sometimes see reference to other cover — professional indemnity, employment practices liability, cyber and so on. For most non-executives these are the company’s concern rather than the director’s: the company carries its own business insurance, and a well-drafted D&O policy already extends to the employment and regulatory claims a director is most likely to face. There is rarely a need for a NED to arrange separate personal cover. The exception worth noting is where someone provides genuinely separate professional or consultancy services to a company alongside a board seat — there, their own professional indemnity cover for that advisory work may be relevant, distinct from the D&O cover for their director role. For the pure non-executive role, D&O is what counts.

Understanding this is part of taking a board seat on the right terms — and confirming adequate cover is one of the practical checks a well-run appointment process addresses. At NED Capital we advise candidates and boards on the terms of appointment as a matter of course, and every search is led personally by Adrian Lawrence FCA, a Fellow of the ICAEW and former listed-company finance director. To discuss an appointment, our NED recruitment service is the place to start, and our guide on a NED’s legal duties explains the liability this cover exists to address. This article is general information, not insurance or legal advice.

NED Capital | Sister practice of FD Capital | ICAEW practising certificate held by Adrian Lawrence FCA. This article is general information, not insurance or legal advice.