Why Every Director and Officer Should Have Their Own D&O Insurance
A guide for directors of regulated and non-regulated companies in Gibraltar
Introduction
Accepting a directorship or senior officer role brings significant responsibility. It can also expose individuals to risks that many do not fully appreciate until a problem arises. Many directors assume that the company's insurance will protect them if things go wrong. The reality is often more complicated, and potentially far more costly.
This article explores why individual Directors & Officers (D&O) insurance is becoming an increasingly important consideration for directors and senior executives, drawing on real enforcement examples, including cases from Gibraltar, to illustrate what can happen when accountability becomes personal.
What Is D&O Insurance?
D&O insurance is a liability policy that provides coverage to directors and officers against legal claims arising from their decisions or actions taken in the course of their duties. It is structured around three main covers:
Side A covers individual directors and officers when the company is unable or refuses to indemnify them, most commonly in insolvency. This is the most critical cover for individuals.
Side B reimburses companies that choose to indemnify their directors, covering defence and related costs.
Side C also known as Entity cover, covers the company itself.
For any individual in a board or senior management role, Side A is the critical protection, it responds when the company cannot or will not stand behind you personally.
Why Directors Face Personal Exposure
Directors are not simply figureheads. Without D&O cover, defence costs, settlements, and awards resulting from claims by shareholders, third parties, or regulators fall directly on a director's personal finances. The consequences of being unable to defend a claim can include disqualification, criminal prosecution, custodial sentences, bankruptcy, and lasting financial hardship, all irrespective of whether the company itself survives.
The Risk Landscape in Gibraltar – Regulated Companies
Gibraltar is a mature and well-regulated financial services jurisdiction, governed primarily by the Financial Services Act 2019 (FSA 2019) and overseen by the Gibraltar Financial Services Commission (GFSC). That robust regulatory framework is precisely what creates heightened personal exposure for directors of regulated entities.
Directors who breach their statutory or fiduciary obligations may face both civil claims and, in serious cases, criminal penalties. Individual liability may arise from negligence, breach of duty, or breach of trust.
Potential liabilities for directors of regulated Gibraltar entities include financial penalties and regulatory sanctions under the FSA 2019, disqualification from serving in regulated entities, and civil claims from investors seeking redress for losses due to mismanagement or breach of duty. The GFSC's EIF Director Policy Statement explicitly requires that 'an EIF director must take out appropriate directors and officers liability insurance, where necessary', a clear regulatory expectation that individual cover is part of the minimum standard for those serving in this role.
D&O Exposure Is Not Limited to Regulated Companies
A common misconception is that D&O risk is confined to directors of regulated firms. In reality, directors of ordinary private companies can also face significant personal exposure. In Gibraltar, those responsibilities arise through a combination of the Companies Act 2014, the Insolvency Act 2011, common law duties and, where relevant, UK legislation and case law that remain highly influential in Gibraltar's courts.
Although the Gibraltar Companies Act 2014 provides the primary statutory framework, UK decisions continue to carry significant weight given Gibraltar's common law system and principles of judicial precedent. This means that landmark UK cases on director liability carry significant weight in Gibraltar's courts.
Common Law Duties
In the UK, many traditional fiduciary obligations are enshrined in the Companies Act 2006 as statutory duties; in Gibraltar they continue as common law duties. These include promoting the company's success, exercising independent judgment, demonstrating reasonable care and skill, and avoiding conflicts of interest. The law places great emphasis on a director's obligation to ensure the business is run with rigour, care, and diligence, it is far removed from a position of prestige and is one of substantive accountability.
Perhaps most importantly, directors cannot simply rely on the judgement of others, whether fellow directors, shareholders or professional advisers. The law expects directors to exercise their own independent judgement. A director who fails to challenge decisions that ought reasonably to have been questioned may still find themselves personally accountable.
Insolvent Trading – Gibraltar Insolvency Act 2011
One area where directors are often surprised by their potential exposure is insolvency.
Under Gibraltar's Insolvency Act 2011, directors may face personal liability for insolvent trading, unlawful preferences, misfeasance, and fraudulent trading. A liquidator may pursue a director personally if that person continued to trade when they knew, or ought to have known, that the company could not avoid insolvency. This mirrors section 214 of the UK Insolvency Act 1986, and Gibraltar courts have applied equivalent UK case law directly. The Act allows courts to look back up to two years, meaning past decisions can generate personal liability long after they were made.
Tax Liabilities
Directors of Gibraltar companies with cross-border activity, particularly those with UK connections or UK-resident employees, face exposure to HMRC's Personal Liability Notice (PLN) regime. A PLN removes the protection of limited liability and holds directors personally responsible for unpaid National Insurance Contributions where HMRC alleges fraud or neglect. More broadly, Gibraltar's own tax framework imposes obligations on directors to ensure proper reporting and payment; failure to do so can attract personal liability for the company's tax debts.
Shareholder and Investor Disputes
Under section 111 of the Gibraltar Companies Act 2014, minority shareholders hold meaningful protections against decisions that would unfairly prejudice their interests. Where directors are seen to have acted in the interests of one shareholder group at the expense of another, personal claims can follow. In acquisition situations, directors of the target company may face personal claims alleging misrepresentation of financial position, with defence costs alone capable of running to several million pounds.
Environmental and Criminal Liability
Directors may face personal liability for environmental damage caused by the company's activities. Gibraltar's Health and Safety at Work Act and associated regulations impose personal duties on directors, and where serious injury or death results from a governance failure, individual directors can face prosecution. The UK's Corporate Manslaughter and Corporate Homicide Act 2007, and the Gibraltar Crimes Act 2011, illustrates how far that personal exposure can extend in the most serious cases.
Why Passive Oversight Is No Longer Enough
Non-involvement offers no protection. Directors found to have breached their fiduciary or statutory obligations may face claims from the company, its shareholders, or liquidators, particularly where creditors' interests are compromised. The role demands active engagement. Before accepting any directorship, thorough due diligence on the company, its finances, and its key stakeholders is essential. For those already serving, vigilance and proactivity are not optional, they are the first line of personal defence.
Real Claims: What Can Happen to Individuals
The following examples illustrate the breadth of personal exposure facing directors in Gibraltar, and the very real consequences of being without adequate individual cover.
Gibraltar: Regulatory Prohibition – Professional Trustee Services
The GFSC found that a Gibraltar-based firm provided professional trustee services to pension schemes without the required regulatory permission and that the business had been accepted with full knowledge that the GFSC had declined consent. Two directors accepted the findings and stepped down. Both were barred from seeking authorisation in any financial services capacity for two years and were required to surrender their individual licences.
The firm faced consequences, but so did the named individuals, personally and professionally. D&O cover would have funded their legal representation throughout the process.
Gibraltar: Enterprise Insurance Company PLC – The Cost of Being on the Wrong Board
The collapse of Enterprise Insurance in 2016 is arguably the most instructive Gibraltar D&O case on record. The firm was placed into provisional liquidation and was subsequently found to be insolvent to the tune of over £96 million, nearly four times the sum originally estimated. Over 750,000 policyholders across five countries were affected. All ten directors, including non-executive members with no operational role, became the subject of a major GFSC investigation.
The Enterprise case demonstrates several critical points in a single case study:
A non-executive director with no operational role still faced years of regulatory investigation, reputational damage, and substantial personal legal costs.
The GFSC's public statements alone, before any findings, caused quantifiable financial loss exceeding £200,000 per year.
Legal costs accumulated across multiple simultaneous fronts: GFSC investigation, liquidator's malfeasance claim, and the director's own libel action.
The company, being in liquidation, was entirely unable to indemnify any director, precisely the scenario where Side A D&O cover is indispensable.
UK: Wrongful Trading – BHS
Former directors of BHS were ordered to pay millions after a court found evidence of wrongful trading and breaches of corporate duty. The case, which under common law principles carries direct persuasive weight in Gibraltar, is a stark reminder that allowing a company to continue trading when insolvency is foreseeable can result in directors being held personally liable for the debts accrued during that period. Defence costs in such proceedings regularly run to seven figures before any judgment is reached.
Why the Company Policy May Not Be Enough
Many directors assume that their organisation's D&O policy will automatically protect them. In many situations it will. However, there are circumstances where that protection may be limited or unavailable altogether.
Insolvency
An insolvent company cannot indemnify its directors at the very moment they most need support. Whilst Side A cover within a standard D&O policy exists to fill this gap, it can itself become tied up in insolvency proceedings if it forms part of a combined policy. Side A cover exists precisely to fill this gap.
Conflicts of Interest
Where the company and a director have conflicting interests in the same claim, the company's insurer will protect the corporate interest, not the individual's.
Shared Limits
Where a policy limit is shared between the company and all its directors, a major corporate claim can exhaust the limit before individual defence costs are met.
Past Roles
If the company has since dissolved, been acquired, or changed insurer, the cover a director relied upon may simply no longer exist, leaving them personally exposed for decisions made years earlier.
The GFSC's Increasing Focus on Individual Accountability
The regulatory trend in Gibraltar mirrors what is happening across leading jurisdictions globally: regulators are moving away from punishing only institutions and are holding named individuals to account. The GFSC regularly publishes enforcement outcomes that name individuals alongside firms, meaning reputational damage travels with financial penalties and prohibition orders.
The GFSC's approach reflects a broader international trend towards individual accountability. Published enforcement action serves both to deter poor conduct and to raise standards across the sector. The increasing visibility of actions against named individuals suggests that personal accountability is becoming a more established feature of the regulatory landscape rather than an occasional exception.
Who Should Consider Individual D&O Insurance?
In short: any director or officer of any company incorporated in Gibraltar. That includes directors of:
Licensed financial services firms, investment, insurance, fiduciary, DLT and cryptocurrency businesses
Experienced Investor Funds and other regulated collective investment schemes
Private companies of any size, including family-owned and owner-managed businesses
Non-profit and charitable organisations
Companies with cross-border operations or UK connections
The decisions made as a director can resurface months or years later in the shape of a personal claim. Senior executives are judged by their decisions and may be held personally responsible for the consequences, regardless of whether, at the time, they believed they were acting properly and in the company's best interests.
Conclusion
Directors today operate in an environment where accountability, governance expectations and regulatory scrutiny continue to increase. Gibraltar is no exception.
The Enterprise Insurance case demonstrates how quickly matters can escalate and how long their consequences can last, even for individuals who are not involved in the day-to-day running of a business. It also highlights a reality that many directors overlook: when a company faces serious difficulties, the protections they expected to rely upon may not always be available.
Individual D&O insurance, particularly dedicated Side A cover, helps ensure that directors have access to legal and financial support when they need it most. For many, it is becoming less about insurance and more about prudent professional protection.
As expectations of directors continue to evolve, understanding and managing personal exposure is increasingly part of the role itself.
Speak to our experienced team about Individual D&O Insurance today on +350 200 59249 or info@peninsulaunderwriting.com
