This clause requires the company to buy insurance that protects its directors and officers (senior managers) if they are personally sued for decisions they make at work. For example, if a director is sued for negligence or breach of duty, this insurance pays their legal fees and any damages awarded. This matters legally because without it, directors can face personal financial ruin even when acting in good faith for the company. In the US and UK, courts recognize that directors need this protection to encourage them to take business decisions without fear of personal bankruptcy. The clause typically specifies who must be insured, what amount of coverage is needed, and who pays the premiums.
If you're a director or officer, push for this clause and ensure the coverage limit is realistic for your company's size and industry—£5 million might be too low for a large firm. Check that the policy covers legal defense costs *before* any judgment, not just after, since legal bills can bankrupt you during a lawsuit. Ask to see proof of the actual insurance policy, not just a promise to buy it. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause requires the company to buy insurance that protects its directors and officers (senior managers) if they are personally sued for decisions they make at work.
Why should I care about this clause?
For example, if a director is sued for negligence or breach of duty, this insurance pays their legal fees and any damages awarded.
What are my options?
This matters legally because without it, directors can face personal financial ruin even when acting in good faith for the company.
How does this affect small businesses?
In the US and UK, courts recognize that directors need this protection to encourage them to take business decisions without fear of personal bankruptcy.