A director committing a fault in the exercise of its functions does not in principle engage its personal assets: the company it represents answers, because it acted as that company's organ. That rule protects directors and allows anyone to accept an appointment without putting their house at stake. A directors' and officers' policy exists precisely for the cases where that protection falls away, and knowing when it falls is what allows a claim to be anticipated rather than suffered.
The first case, and the most argued, is the fault severable from the functions. The formula is old and its test has tightened over time: it is not enough that the fault be serious, it must be of such gravity as to appear incompatible with the normal exercise of the mandate. A director who errs, even badly, is still acting as a director; a director who knowingly commits an act contrary to the corporate interest or to the law steps outside its role. Between the two lies a boundary courts draw case by case, and it is around it that these files are argued.
The second case depends on no assessment and is far more frequent: the legislation making a director personally liable, whatever the company's conduct. Tax and social security obligations, the safety of persons, the environment, data protection, competition rules: several bodies of rules name the director expressly, or the person to whom powers have been delegated. Here there is no debate about severability, there is a text naming a natural person.
The third case is liability towards the company itself, and it disconcerts because the claimant is the employer. A company may act against its own director for a management fault, on its own initiative, on that of a shareholder acting in its name, or on that of an officer appointed when it is in difficulty. It is the commonest litigation in practice, and it explains why the definition of the insured and that of the claimant can designate the same company in a single file.
One must then know that delegation of powers moves liability without removing it, and that it is misunderstood in both directions. It protects the director only if it is real: the delegate must have the competence, the authority and the means to exercise what is entrusted, failing which it is a piece of paper. And where it works, it personally exposes someone who is not a corporate officer, that is, as the first lesson showed, someone many policies do not cover.
What the policy does during proceedings must be added, since that is where it most often serves. A personal claim mobilizes defense costs long before any liability is established, and in most files no judgment against anyone will ever be entered. Defense costs cover is therefore, by volume, this line's principal service: it pays for months for directors of whom it will later be said that they had done nothing wrong, and that is a good use of insurance and not a waste.
The useful reading therefore comes to a question asked before any claim. On what can my personal liability be engaged, independently of the company: a text that names me, a delegation I have given or received, a decision taken against a third party's written advice. A director who has made that list knows where it is exposed and where it is not; one who has not believes the company covers it, which is true until the day it cannot, or the day it is the company doing the suing.
The managing director of a civil engineering company faces claims on three fronts after a trench collapse killed an employee in April 2025. First front: a personal prosecution over the safety of persons, the delegation of powers he had granted to the site manager being contested because that person had neither a budget nor authority to stop a site. Second front: the site manager, an employee and not a corporate officer, is pursued alongside him. Third front: eighteen months later, the company having entered administration, a minority shareholder blames the managing director for having maintained a pace of work incompatible with headcount, and seeks damages in the company's name. The policy covers "corporate officers". How does this file divide?
The three fronts belong to three different mechanisms, and confusing them would miss the only one that is not covered. The first belongs to the lesson's second case, that of a text naming a natural person: the managing director's personal liability over the safety of persons depends on no assessment of whether his fault is severable, it is provided by rules that name him. The contested point lies elsewhere, in the validity of the delegation, and it is decisive both ways: a delegation without its own budget or authority to stop work is not real, so it does not protect the delegator, and the managing director stays personally exposed. He is a corporate officer, the policy covers him, and most of what the insurer will do here is pay his defense, which is by volume the line's principal service. The second front is the one to flag early because this contract has no answer to it: the site manager is an employee, a corporate officer of nothing, and the definition covers only corporate officers. He is therefore pursued personally without being insured, and the delegation, precisely because it is challenged as inadequate, protects him no more than it protects his delegator. The third front belongs to the lesson's third case, liability towards the company, and it is the most counter-intuitive: the claimant acts in the name of the business, that is, of the entity that took out the policy and pays the premium. The managing director remains insured; it must only be checked that the contract carries no exclusion of claims brought by the company or its shareholders, a clause present in some wordings and which would empty this front of cover. Two steps follow. Notify all three fronts as one set of facts, leaving the insurer to characterize. And tell the board, separately, that the company has put in place delegations that are not delegations and exposes employees without insuring them, which is a defect of organization and not of insurance.
- 01The principle protects: a director acting as an organ engages the company, not its assets. The policy exists for where that principle falls away.
- 02A severable fault takes more than gravity: it takes incompatibility with the normal exercise of the mandate, and the boundary is argued.
- 03The commonest case depends on no assessment: a text naming the director, in tax, social security, safety or environmental matters.
- 04A delegation protects only if it is real, and where it works it personally exposes someone many policies do not cover.
- 05By volume the line's principal service is defense: it pays for months for directors of whom it will later be said they had done nothing.