The Personal Liability Reality for Directors
Being a director of your company carries significant personal liability that many directors do not fully appreciate — until they face a claim.
Under the Companies Act 1993 and other legislation, your company directors can be personally liable for:
- Trading while insolvent (reckless trading)
- Breach of fiduciary duty to the company and shareholders
- Misleading financial statements or disclosures
- Failure to maintain adequate accounting records
- Breach of environmental, health and safety or other statutory obligations
- False or misleading conduct under the Fair Trading Act
Who Needs D&O Insurance?
D&O insurance is relevant for any your business with directors or officers responsible for management decisions. This includes:
Private Companies The most common misconception is that D&O is only for listed companies. In reality, private company directors face the same legal obligations as public company directors — including personal liability under the Companies Act — and are equally exposed to claims from shareholders, creditors, employees and regulators.
Startup Companies with External Investors Investor-backed startups face heightened D&O exposure. Investors who suffer losses may pursue directors for breach of fiduciary duty, misrepresentation in investment rounds, or failure to disclose material information. D&O cover is often required by sophisticated investors as a condition of investment.
Not-for-Profit and Charitable Trusts Trustees of charities and incorporated societies can be personally liable for governance failures, financial mismanagement and breach of trust obligations. D&O or trustee liability insurance is essential for any not-for-profit with meaningful assets or activity.
Family Businesses Even in a family-owned company, a director can face claims from other shareholders, employees, creditors or regulators. D&O protects the personal assets of family members serving as directors.
Companies in Financial Difficulty The risk of personal liability increases dramatically when a company approaches insolvency. Directors of financially stressed companies should ensure D&O cover is in place before problems become critical — cover cannot be purchased after a claim has arisen.
What D&O Insurance Covers
A standard D&O policy covers three broad areas:
Side A: Individual Director/Officer Cover Covers directors and officers directly when the company cannot indemnify them — for example, if the company is insolvent. This is the most critical coverage, as it protects personal assets when the company cannot.
Side B: Company Reimbursement Cover Covers the company when it has indemnified a director or officer. If the company pays the director's legal costs and any judgment, Side B reimburses the company.
Side C: Entity Cover In some policies, entity cover extends to claims made against the company itself — commonly for securities claims. This is more relevant for listed companies.
What D&O typically covers:
- Legal defence costs for claims and investigations
- Compensation and settlements for wrongful management acts
- Regulatory investigation costs (including FMA, Commerce Commission investigations)
- Employment practices liability (EPL) — claims by employees for wrongful dismissal, discrimination or harassment (often included as an extension)
- Statutory liability for company directors (sometimes included)
What D&O Insurance Does NOT Cover
- Fraud and dishonesty (once proven)
- Deliberate illegal acts
- Property damage and bodily injury (covered by liability policies)
- Claims between directors of the same company (some policies provide limited cover)
- Fines and penalties in some jurisdictions (criminal fines are generally not insurable)
D&O and Regulatory Risk
A number of regulators can investigate and prosecute company directors:
Financial Markets Authority (FMA) The FMA has broad powers to investigate financial services firms, advisers and listed companies. Investigation by the FMA is costly and stressful — D&O insurance covers legal representation during FMA investigations.
Commerce Commission The Commission investigates breaches of the Fair Trading Act, Commerce Act and Consumer Guarantees Act. Director-level liability can arise from anti-competitive conduct or misleading representations.
WorkSafe NZ Under the Health and Safety at Work Act, officers (including directors) have personal due diligence obligations. Failure to exercise due diligence following a workplace accident can result in personal prosecution and fines up to $300,000.
Serious Fraud Office Fraud allegations by the SFO can trigger enormously expensive and lengthy investigations. D&O insurance typically covers defence costs — but not fines — for SFO investigations.
How Much Does D&O Insurance Cost in NZ?
D&O premiums vary based on:
- Company revenue and balance sheet size
- Industry and nature of business activities
- Number of directors and officers
- Presence of external shareholders or investors
- Prior claims history and any known circumstances
- Small private company (under $2M revenue): $1,500–$4,000/year
- Medium company ($2M–$20M revenue): $3,000–$10,000/year
- Larger company or high-risk sector: $10,000–$50,000+/year
Getting D&O Insurance for Your Business
D&O insurance is typically structured as a standalone policy or as part of a management liability package that can include employment practices liability, statutory liability and crime cover. The right structure depends on your company's risk profile.
An insurance adviser can help you:
- Assess the appropriate cover structure for your company
- Determine adequate policy limits
- Review policy exclusions and ensure fit for purpose
- Compare options from multiple insurers
A specialist in commercial insurance for businesses across New Zealand, with expertise in helping SMEs and professional services firms navigate the commercial insurance market.