This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Comprehensive guide to directors' indemnities and insurance in England and Wales, explaining statutory limits under the Companies Act 2006, the role of indemnity provisions, Directors' and Officers' (D&O) insurance coverage, practical guidance on securing protection, and key limitations and exclusions.
Directors in companies often face significant legal and financial exposure due to the duties and responsibilities imposed on them by law. In England and Wales, directors' personal liability can arise from allegations of negligence, default, breach of duty, breach of trust, regulatory sanctions, or third‑party claims. To manage these risks, companies use indemnities and insurance mechanisms, including Directors' and Officers' (D&O) insurance, to protect directors from personal loss and defend claims. Understanding how these protections work within the framework of the Companies Act 2006, corporate governance principles, and commercial risk management is important for company boards, shareholders, and advisers.
This article explains directors' indemnities, associated legal rules, insurance options and how they operate in practice.
What Are Directors' Indemnities?
A director's indemnity is a contractual promise by a company to cover certain liabilities or costs a director may incur in connection with their role. In the corporate context, indemnities are typically agreements or provisions in a company's articles of association or service contracts that require the company to reimburse a director for legal costs, damages or other losses arising from claims.
Legal Basis and Limits
Under English company law, not all indemnities are permissible. The Companies Act 2006 expressly governs what indemnities a company may provide:
- Section 232 CA 2006 prevents companies from exempting a director from liability for negligence, default, breach of duty or breach of trust in relation to the company. Any provision purporting to do so is void.
- Section 233 CA 2006, however, permits companies to purchase and maintain insurance to cover directors' liability.
- Articles of association may include indemnity provisions permitted by statute. These provisions typically allow indemnities for liabilities to third parties, costs incurred in defending actions, or where the director successfully defends proceedings.
In practice this means:
- A company cannot indemnify a director against liabilities owed to the company or associated companies arising from negligence or breach of duty.
- A company can indemnify a director against costs and liabilities arising from claims by third parties, including the costs of defending those claims.
- Indemnities must be drafted carefully to comply with statutory limits; otherwise they may be void in their entirety.
Articles of Association and Indemnities
Indemnity provisions may be included in a company's articles of association. Where permitted by statute, these can enable the company to indemnify directors subject to the statutory restrictions. Model articles for private companies often include an indemnity clause allowing a company to reimburse directors for certain liabilities and defence costs. Companies may also adopt bespoke indemnity clauses tailored to their circumstances, but these must comply with the statutory framework.
Contractual Indemnities
In addition to articles, directors may have indemnity protection in their appointment letters or service contracts. Contractual indemnities should reflect statutory constraints and detail the scope of potential reimbursements for legal costs, settlements or damages. Directors and employers should confirm that such provisions are legally valid and sufficiently robust.
Directors' and Officers' (D&O) Insurance
Because indemnities may be limited by statute and subject to a company's ability to pay, most companies supplement indemnities with Directors' and Officers' (D&O) insurance-a specialised form of liability insurance designed to protect directors and officers against a range of legal risks.
What D&O Insurance Covers
D&O insurance typically provides cover for:
- Defence costs incurred in responding to civil claims, regulatory investigations or statutory actions;
- Damages or settlements arising from claims covered by the policy (subject to policy terms and limits);
- Claims made by third parties, including shareholders, creditors, employees and regulators;
- Representation costs at official enquiries, tribunals or court proceedings.
A D&O policy often has different layers of cover, including:
- Side A cover, which protects directors personally where the company cannot indemnify them (for example during insolvency);
- Side B cover, which reimburses the company for indemnities it provides to directors;
- Side C or entity cover, which may protect the company itself in certain claims, such as securities litigation (often relevant for publicly traded companies).
Statutory Permission for Insurance
The Companies Act 2006 explicitly allows companies to purchase and maintain insurance for directors against liabilities as permitted by statute, even where indemnities are limited or prohibited. This statutory permission ensures that companies can provide an important layer of risk management for board members.
Practical Benefits of D&O Insurance
D&O insurance helps in several ways:
- It provides financial protection for directors' personal assets by covering legal costs and potential liabilities associated with their decisions.
- It assists companies in attracting and retaining qualified directors who might otherwise be reluctant to serve without protection against personal loss.
- It supports good corporate governance by encouraging directors to discharge their duties without undue fear of personal financial exposure.
Limitations and Exclusions
D&O policies typically exclude certain liabilities, such as:
- Fraudulent, dishonest or criminal conduct;
- Fines and penalties that are uninsurable by law;
- Claims connected with wrongful acts known before the policy start date;
- Other specific risks detailed in policy wordings.
These exclusions mean that directors may still face personal liability for certain categories of misconduct. It is important to review policy terms carefully.
Practical Process and Best Practices
Reviewing Indemnity Provisions
Directors and corporate advisers should:
- Review the company's articles of association to understand existing indemnity provisions;
- Confirm that indemnities and insurance arrangements comply with statutory restrictions in the Companies Act 2006;
- Ensure that any indemnity wording is clear about its scope, triggers and limits;
- Consider whether indemnity provisions survive termination of directorship or company dissolution.
Securing Appropriate Insurance
Before entering a directorship, individuals and companies should consider:
- D&O insurance cover limits, policy wording, exclusions and run‑off arrangements for retired or former directors;
- Whether the policy provides appropriate protection for likely legal exposures, including regulatory investigations and shareholder claims;
- The claims‑made basis of many D&O policies, meaning that coverage applies to claims first made during the policy period.
Documentation and Transparency
Companies should document indemnity and insurance provisions clearly in board minutes, directors' service agreements, and governance policies. Transparency to shareholders about risk management arrangements supports better corporate governance.
Common Questions
Can a company indemnify a director for all liabilities?
No. Under the Companies Act 2006, indemnities are limited: companies cannot indemnify directors for liabilities owed to the company or associated companies arising from negligence, default, breach of duty or breach of trust, except in specified circumstances permitted by statute.
Does D&O insurance cover criminal fines?
Generally not. Insurance usually excludes coverage for fines or penalties arising from criminal conduct, although it often covers defence costs during investigation and trial until final adjudication.
Do indemnities and insurance replace personal liability?
No. Indemnities and insurance provide protection up to the extent permitted by law and policy terms, but directors can remain personally liable where indemnity or insurance does not apply (such as in cases of fraud or statutory disqualification).
Final Thoughts
Directors' indemnities and insurance are important components of risk management in corporate governance. While the Companies Act 2006 limits the scope of indemnities, companies may still provide protection for directors through lawful indemnity provisions and by purchasing Directors' and Officers' liability insurance. These protections help directors manage personal legal exposure arising from corporate decision‑making, support good governance, and attract and retain qualified individuals. Careful drafting, clear documentation and appropriate insurance coverage contribute to effective risk mitigation and safeguard both directors and companies against potential claims.
