What’s in this Article
Your D&O policy sits in the company files, unread except when investors requested proof of coverage during fundraising. You’ve paid premiums for three years without incident.
Then a minority shareholder sends a formal claim letter alleging breach of fiduciary duty, claiming £1.2 million in damages. Your CFO receives notice of an ICO investigation into historic data protection practices. The company’s liquidator writes requesting information about trading decisions made six months before insolvency.
Theoretical insurance coverage becomes urgent practical necessity. Understanding what actually happens when D&O insurance claims examples UK directors experience helps calibrate whether your cover is adequate and how to navigate the claims process.
This article explains real-world D&O insurance claim scenarios directors face, how claims unfold from notification to resolution, what the insurer does, and the practical implications for directors managing claims while running businesses.
Scenario 1: Minority Shareholder Derivative Action
A technology company completes Series B funding at £30 million valuation with complex liquidation preferences favouring new investors. Eighteen months later, the company is acquired for £35 million—a modest outcome given the £18 million raised across two rounds.
Junior shareholders (angels, early employees with options) receive minimal proceeds due to liquidation preference stack. They claim directors breached fiduciary duties under Companies Act s.172 by prioritising Series B investors’ interests over all shareholders, accepting a rushed acquisition that benefited preference shareholders while wiping out ordinary shareholders.
The claim alleges: Directors failed to explore alternative transactions, didn’t maximize value for all shareholders, and acted in Series B investors’ interests (where board members were investor-appointed) rather than the company’s interests holistically.
Claimed damages: £800,000 representing the value junior shareholders would have received if the company had pursued alternative buyers or delayed sale.
How D&O responds:
The claim is notified to the D&O insurer within 48 hours. The insurer appoints specialist solicitors experienced in shareholder disputes and Companies Act duties.
Initial assessment: The claim has merit. Board minutes show limited documentation of alternatives considered, and the speed of the sale process (eight weeks from approach to completion) suggests potential process inadequacy.
But defences exist: The company faced cash burn pressures, alternative buyers weren’t forthcoming, and the board received professional M&A advice throughout.
Resolution: After 14 months of legal process including extensive document disclosure and expert witness reports on company valuation, the claim settles for £220,000. The D&O insurer pays the settlement plus £140,000 in defence costs (total £360,000). Directors pay the £25,000 policy excess.
Key insights: Derivative actions are increasing as liquidation preferences create shareholder class conflicts. Board process documentation matters enormously—well-documented board meetings showing alternatives were considered provides strong defence.
According to the Institute of Directors, derivative actions under Companies Act s.260 increased by approximately 40% between 2019-2023, with average settlement amounts ranging from £150,000 to £600,000 in cases involving shareholder class conflicts arising from complex cap table structures.
Scenario 2: Wrongful Trading Claim Post-Insolvency
A SaaS company burns through £2.5 million Series A funding pursuing aggressive growth. Revenue grows but doesn’t reach projected levels. By month 22 post-funding, the company has three months’ runway and declining monthly revenues.
Directors continue operating, pursuing additional fundraising discussions. They reduce headcount by 30% and negotiate extended payment terms with suppliers. After two more months without securing funding, the company enters administration with £800,000 in unsecured creditor liabilities.
The administrator investigates director conduct. They determine directors knew or should have known six months before administration that insolvency was unavoidable, yet continued trading, incurring £450,000 additional creditor liabilities during that period.
The claim alleges: Wrongful trading under Insolvency Act s.214. Directors are personally liable for £450,000 in creditor debts incurred after the point when they should have ceased trading.
How D&O responds:
This is exactly what Side A coverage exists for—directors facing personal liability when the company is insolvent and can’t indemnify them.
The D&O insurer engages insolvency specialists and forensic accountants to assess the timeline. Key questions: When should directors have concluded insolvency was unavoidable? Were their actions reasonable given the circumstances?
The defence: Directors acted on professional advice, reduced costs aggressively, pursued genuine fundraising discussions with three potential investors, and only continued trading while realistic prospects of rescue existed.
Resolution: After 18 months of negotiation and legal process, the claim settles for £175,000 (directors liable for approximately 40% of the alleged wrongful trading period). D&O Side A coverage pays the settlement plus £95,000 in defence costs. Directors have no personal financial exposure beyond the policy excess.
Key insights: The line between “pursuing reasonable rescue efforts” and “wrongful trading” is heavily fact-dependent. Professional advice (from brokers, accountants, lawyers) documented contemporaneously provides significant protection.
Side A coverage is essential for directors of high-burn companies—without it, personal insolvency can result from wrongful trading liability.
Scenario 3: ICO Investigation and Personal Director Fines
A health-tech company processes patient data for NHS trusts. An employee error exposes 15,000 patient records to unauthorized access. The company notifies ICO within 72 hours as required by UK GDPR.
ICO investigates, finding systematic data protection compliance failures: inadequate staff training, no data protection impact assessments, insufficient access controls, and poor incident response procedures.
ICO issues fines: £450,000 to the company, plus personal fines of £50,000 each to the CEO and CTO under individual accountability provisions for senior managers’ data protection responsibilities.
The claim against directors: Personal regulatory fines for failure to implement adequate data protection governance in their areas of responsibility.
How D&O responds:
D&O policies vary on whether regulatory fines are covered. This policy includes regulatory defence costs but limits personal fines coverage to £100,000 aggregate for all directors.
The insurer funds defence costs (£65,000 for representation during ICO proceedings) but only covers £50,000 of the £100,000 personal fines. Directors are personally liable for the remaining £50,000.
Key insights: D&O coverage of regulatory fines varies significantly by policy wording and whether fines are legally insurable. Always confirm regulatory penalties provisions in your D&O policy—don’t assume coverage exists.
Data protection personal liability is increasing under UK GDPR. Directors in data-heavy businesses (healthcare, financial services, ed-tech) face material personal regulatory exposure.
According to Information Commissioner’s Office enforcement data, approximately 12% of ICO data protection enforcement actions between 2020-2023 involved considerations of personal director liability, though most result in corporate fines only—demonstrating that while personal director fines remain relatively rare, they’re increasingly within ICO’s enforcement toolkit.
Scenario 4: Employment Tribunal Director Liability Claim
A FinTech company terminates its Head of Compliance following disagreements about regulatory risk reporting. The former employee claims constructive dismissal, whistleblowing retaliation, and sex discrimination.
The claim names the company plus individually names the CEO and COO who were involved in termination decisions. The employee claims £180,000 in compensation plus £35,000 in legal costs.
The allegations: Constructive dismissal after directors created hostile working environment following compliance concerns, retaliation for whistleblowing about regulatory issues, and sex discrimination (former employee is female, executive team is male).
How D&O responds:
Most D&O policies include employment practices liability coverage protecting directors from personal employment claims. This policy includes EPLI extension.
The insurer appoints employment tribunal specialists. Initial assessment: The whistleblowing element is concerning—if the employee can demonstrate she raised genuine regulatory concerns and was subsequently treated unfavourably, this strengthens her case significantly.
Discrimination claims are always difficult—even weak claims are expensive to defend, and tribunal decisions are unpredictable.
Resolution: After preliminary hearing and extensive settlement discussions, the claim settles for £95,000 (split between company and directors’ personal liability). D&O covers the directors’ portion (£40,000) plus defence costs (£28,000).
Key insights: Directors are increasingly named personally in employment claims, particularly whistleblowing and discrimination cases. EPLI coverage within D&O is essential—verify your policy includes this extension.
Document all employment decisions thoroughly, take professional HR and legal advice, and treat whistleblowing reports seriously with proper investigation processes.
Scenario 5: Regulatory Investigation During Fundraising
A payment processing company is raising Series B while under FCA investigation for suspected anti-money laundering control failures. The investigation was triggered by transactions the company processed two years earlier.
The CEO faces personal questioning under FCA investigation powers. No charges have been brought, but the investigation is ongoing and public knowledge affects fundraising discussions.
Investors require evidence that directors have appropriate protection for regulatory proceedings. The company’s D&O policy becomes material to investment negotiations.
The D&O response:
The policy covers regulatory investigation defence costs. The insurer funds specialist financial services regulatory lawyers (£45,000 in costs over six months) to represent the CEO during FCA proceedings.
Ultimately, FCA closes the investigation with no enforcement action but issues improvement notices requiring enhanced AML controls.
Key insights: Even investigations that don’t result in enforcement are expensive and time-consuming. Regulatory defence costs coverage within D&O is essential for regulated businesses.
Investors increasingly scrutinize regulatory compliance and pending investigations. Having D&O coverage demonstrates professional risk management and can facilitate fundraising discussions.
Scenario 6: Post-Acquisition Warranty Breach Claim
A software company is acquired by strategic buyer for £18 million. The SPA includes extensive warranties about IP ownership, customer contracts, and regulatory compliance.
Nine months post-completion, the buyer discovers the company never obtained proper licenses for third-party software components used in the core product. Remediation costs £320,000 plus damages for breach of IP ownership warranties.
The claim: Buyer claims against selling shareholders under SPA warranties, alleging breach of representations that the company owned all IP used in products.
How D&O responds:
This is a grey area. Some D&O policies cover warranty claims related to director conduct; others exclude them or limit coverage.
This policy provides limited coverage: £100,000 maximum for warranty claims, with directors personally liable for any amounts exceeding that limit.
The claim settles for £280,000. D&O pays £100,000; selling shareholders (including directors) are personally liable for £180,000.
Key insights: D&O provides limited protection for M&A warranty claims. W&I insurance is more appropriate for transaction warranties.
If selling a company, arrange W&I insurance specifically for warranty protection rather than relying on D&O—coverage is better and limits are higher.
Scenario 7: Shareholder Unfair Prejudice Claim
A consulting business has three equal shareholders who are also directors. Two shareholders (who are married) vote to increase their own salaries significantly while refusing dividend declarations that would benefit the third shareholder.
The minority shareholder (33% holder) brings unfair prejudice claim under Companies Act s.994, alleging directors conducted the company’s affairs in a manner unfairly prejudicial to his interests.
The claim seeks: Either buyout at fair value (the third shareholder wants to exit) or remediation (reduced salaries, dividend policy).
How D&O responds:
Unfair prejudice claims are covered under most D&O policies as they involve allegations of director breach of duty.
The insurer appoints solicitors and engages business valuation experts. After 11 months of litigation and valuation disputes, the claim settles with the majority shareholders buying out the minority for £650,000 (between the parties’ valuation positions).
D&O covers the two directors’ defence costs (£85,000) and contributes £150,000 towards the buyout cost (structured as settlement of damages claim).
Key insights: Unfair prejudice claims are common in closely-held companies with director-shareholders. D&O coverage for these disputes is valuable but verify your policy doesn’t exclude shareholder disputes.
Proper governance—documented decision-making, independent advice on compensation, clear dividend policies—provides strong defence against unfair prejudice claims.
Common Themes Across D&O Claims
Several patterns emerge across when D&O insurance pays out scenarios:
Documentation matters enormously. Well-documented board processes, professional advice sought and recorded, alternatives considered and minuted—all provide strong defences and reduce settlement amounts.
Early notification preserves coverage. Directors who notify circumstances promptly when problems emerge maintain coverage. Those who delay or hope problems resolve without insurance involvement risk coverage disputes.
Defence costs are often larger than settlements. Many claims cost £100,000-£200,000 in legal fees even if they settle for modest amounts or are successfully defended. D&O primarily provides access to quality legal defence.
Settlements are common. 80%+ of D&O claims settle rather than proceeding to trial. Insurers, directors, and claimants all have incentives to resolve claims rather than face trial uncertainty.
Exclusions matter. Claims involving fraud, known prior circumstances, or excluded activities (professional services, bodily injury) create coverage disputes. Understanding exclusions before claims arise prevents nasty surprises.
The Bottom Line
D&O insurance claims scenarios UK directors actually face include shareholder derivative actions arising from cap table complexity (£150,000-£600,000 typical settlements), wrongful trading claims post-insolvency (Side A coverage essential for director protection), regulatory investigations with personal director fines (coverage varies by policy), employment tribunal claims naming directors personally (EPLI coverage needed), and post-acquisition warranty disputes (limited D&O coverage, W&I better protection).
Common themes: Documentation of board processes provides strong defence, early notification preserves coverage, defence costs often exceed settlement amounts, most claims settle rather than proceeding to trial, and exclusions create coverage gaps directors discover too late.
The practical insight: D&O claims aren’t rare events affecting only poorly-managed companies. They’re operational realities for directors of scaling businesses with shareholders, employees, creditors, and regulatory obligations.
Having appropriate D&O coverage with adequate limits, proper Side A independence, employment practices liability extensions, and regulatory defence provisions determines whether claims are manageable governance challenges or personally bankrupting disasters
External Resources
Institute of Directors (IoD) – https://www.iod.com/resources/ Professional body for directors, publishes research on director liability trends and governance challenges.
Information Commissioner’s Office (ICO) – Enforcement Data. https://ico.org.uk/action-weve-taken/enforcement/. UK data protection regulator, publishes detailed enforcement action data.
Simplify Stream provides educational content about business insurance for UK companies, especially those with high growth business models that require specialist insurance market knowledge. We don't sell policies or provide regulated advice, just clear explanations from people who've worked on the underwriting and broking side.
