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D&O coverage considerations when your company is private

Private companies often overlook the importance of directors and officers (D&O) insurance, mistakenly believing it’s only for public firms. However, evolving risks—including regulatory, employment, and insolvency issues—can expose private company leaders to significant personal liabilities, making D&O insurance essential to protect their business in today’s complex business environment.
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By Karen Cargill , 

Chief Client Officer, Management Liability and D&O Product Lead

23/09/2025 · 7 minute read

Why private companies need a robust D&O programme

It is a common misconception that only public companies need or benefit from directors and officers (D&O) insurance. While private companies in the UK are not legally required to hold D&O insurance, it is strongly advised, given the range of risks, and the fast-paced nature of the business environment, that such entities face. In today’s complex business landscape, organisations face a series of evolving and emerging risks that can impact their risk profile and potentially expose their directors and officers to significant liabilities. Without appropriate insurance coverage, the personal assets of a private company’s leadership may be in danger.

Despite the potential challenges, many private companies may underestimate the exposure to their leadership teams due, in part, to the belief that disgruntled shareholders represent the only significant source of liability to a director or officer. As a result, private companies may not purchase D&O insurance. This is in circumstances where there are many other risks and potential liabilities faced by the directors of private companies, including the potential for claims involving breach of duty under the Companies Act 2006, insolvency, employment issues, and regulatory, criminal, and statutory liabilities, to name but a few.

Understanding potential exposures for private company directors and officers

In an increasingly litigious environment, where stakeholders, employees, and regulatory bodies may pursue legal action for a range of issues — from financial mismanagement to breaches of fiduciary duty — D&O insurance serves as a safeguard against potential financial losses. 

Many exposures present potential liabilities to the personal assets of the directors and officers of privately held companies, which can extend in certain circumstances to the personal assets of their spouses and estates. These include:

  • Claims under the Companies Act 2006: The Companies Act 2006 imposes seven general duties on directors, including a duty to act with reasonable care, skill, and diligence to avoid conflicts of interest and to promote the success of the company. While directors’ duties are owed to the company, they can be enforced by shareholders by way of a derivative action on the company’s behalf.
  • Claims arising out of insolvency: Should a company become at risk of insolvency, then the duties of the director shift from being that of a duty to the company to a duty to the creditors of the company as a whole. Directors may, for example, be liable for wrongful trading if they continue trading in circumstances where they knew or ought reasonably to have concluded that there was no reasonable prospect the company would avoid going into insolvent liquidation. Further, if trading is carried on with the intent to defraud creditors, directors can face civil and criminal liability.
  • Claims involving regulators: Regulatory bodies such as the Financial Conduct Authority (FCA) and Serious Fraud Office (SFO) can conduct lengthy investigations and take enforcement action.
  • Claims by employees: Employees can bring a range of claims utilising employment law including:  discrimination, harassment, and wrongful and unfair dismissal. In certain instances, directors can be named defendants in claims, for example, discrimination claims, where financial liability in the UK employment tribunals is potentially uncapped. Nowadays, it is common to have some element of employment practices liability (EPL) coverage in a D&O policy, which can respond to such claims against the entity and individual insureds.
  • Claims by competitors, suppliers, and other contractors: Common allegations include anti-competitive behaviour, unfair competition resulting in lost business by the competitor, and infringement of patents, trademarks, and trade secrets.
  • Health and safety violations: Claims vary, from those relating to environmental contamination to employee health and safety. Directors can be held personally liable under certain legislation, most notably the Corporate Manslaughter and Corporate Homicide Act 2007 and the Health and Safety at Work etc Act 1974.
  • Claims by shareholders: Claims brought by private shareholders, bondholders, or other investors or lenders. Claims can include breach of the common law duty to take reasonable skill and care when making statements to shareholders and, where applicable, claims in deceit.
  • Mergers and acquisitions (M&A): A private company can enter into an M&A transaction as the buyer or seller. D&O insurance can help protect against potential claims, including:
    • Alleged financial misstatements or misleading statements about the company’s revenue sources/market share.
    • Failure to perform appropriate due diligence when making an acquisition.
    • Breach of warranties and indemnities.
    • Claims from past creditors and/or vendors of the acquired company.
  • Succession planning and corporate governance: Many private companies are run by, or have founding members and sometimes family members, closely involved in the day-to-day operations through their ownership stakes in the company, which could result in:
    • Disputes when founders are pushed out of their leadership roles.
    • Legal disputes among family members when they are a part of an ownership trust that is involved in the operation of a company or potential transactions.
    • Poor succession planning leading to leadership vacuums and/or disputes in the event of a sudden change in leadership due to illness or death.
  • Capital raises/initial public offering (IPO): As a private company evolves, many organisations choose to pursue funding raises or an IPO. This crucial milestone introduces new capital and often new ownership. However, the interplay of legal disclosures and the influx of new stakeholders increases the organisation’s exposure to shareholder litigation. The company and its directors can incur liabilities for the particulars and any information that is included in the prospectus, if it is found to be misleading or fails to disclose material information. It is also usual for the directors and the company to provide representations and warranties. IPOs represent a significant shift in risk profile, frequently resulting in new underwriting requirements from the D&O insurance market, as well as adjustments to pricing, coverage limits, retentions, and overall coverage.

A well-structured D&O programme provides essential liability protection for the personal assets of directors and officers in the event they are sued for alleged wrongful acts while managing the company.

Additionally, having D&O coverage can enhance a company's ability to attract and retain top executive talent, as it demonstrates a commitment to protecting leadership from personal liability.

Legal standards of conduct for directors and officers of privately held companies

As noted above, the Companies Act 2006 sets out seven core statutory duties, which cover everything from day-to-day business decisions to long-term strategy, financial management, and the duty to act in the best interests of the company. The duties of a company director in the UK are onerous and not to be undertaken lightly, and the ever-increasing legal and regulatory risks reflect that.

Is the company obliged to indemnify its directors and officers?

Though a company’s by-laws usually provide some type of indemnification to its directors and officers, there are a number of instances where companies are unable (or unwilling) to provide such indemnification. Examples include:

  • Inability to indemnify: A company going through financial insolvency or with insufficient cash flow might not be able to indemnify its directors and officers. 
  • Criminal fines or penalties: A company cannot indemnify a director for fines or penalties for criminal conduct.
  • Derivative claims: Indemnification is not permitted in cases where the company sues the director.
  • Interpretation of “good faith”: In many jurisdictions, a corporation is not obligated to indemnify its directors and officers if the director or officer did not act in “good faith”.
  • Agreement not to indemnify: Some organisations have bylaws that preclude indemnification for certain acts, which commonly include alleged fraud or intentional misconduct by a director or officer.

These scenarios underscore the importance of a robust D&O insurance programme, since this presents the only protection for an individual’s personal assets.

Why do private companies need D&O insurance?

  • To protect the personal assets of directors and officers and, where applicable, those of their spouses and estates.
  • To protect the income statement and balance sheet of the company.
  • To attract and retain qualified outside directors.
  • To establish a relationship with an insurer before a potential IPO.
  • To avoid diverting management time and attention to protracted and costly litigation.
  • To provide risk transfer for a broad range of exposures for the company.

What do private company D&O policies cover?

Private company D&O policies afford coverage to the board of directors, executive officers, and employees (where acting in a managerial capacity) of a company for claims made against them in their capacities as such. Private company D&O policies may also include coverage for claims involving violations of employment practices laws.  As with any well-managed D&O programme, the limits, structure, and coverage provisions should be reviewed on an annual basis to ensure that they are appropriate for the risk profile of the insureds.

Should you have any queries arising from this article, please contact your Marsh advisor or Marsh’s Management Liability team.

Marsh Management Liability team

Marsh advises companies of all sizes on their management liability cover

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Karen Cargill

Chief Client Officer, Management Liability and D&O Product Lead

  • United Kingdom

Helen Haggie

Helen Haggie

Head of Management Liability, FINPRO, Marsh Specialty UK

  • United Kingdom

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