A question we are asked regularly by newly formed RTM boards: do we have to take out directors' and officers' insurance, and what would it actually protect us against?
There is no general statutory requirement for an RTM company to hold directors' and officers' liability insurance, but most boards arrange it and it is widely treated as good practice. It responds to claims made against directors and officers personally in connection with their role, typically covering defence costs and, subject to the wording, awards or settlements. The building's own policies do not do this: buildings insurance covers the structure, property owners' liability covers third-party injury and damage, and employers' liability, which is compulsory where the company has employees, covers staff claims. Whether the premium is recoverable through the service charge depends on the lease.
There is no general statutory rule that requires every right to manage company to hold directors' and officers' liability insurance. It is not the same as employers' liability cover, which is compulsory where a company has employees, and it is not something Companies House or the tribunal will ask to see.
That said, most RTM and RMC boards do arrange it, and for good reason. The alternative is that a director who is sued personally has to fund their own defence, and the fact that they were volunteering their evenings for the benefit of their neighbours does not change that.
Directors' and officers' liability insurance responds to claims made against directors and officers personally in connection with their conduct in that role. Depending on the wording, it can cover legal defence costs, awards or settlements, and the costs of responding to certain investigations or regulatory action.
The critical point is what it is not. The building's own insurances do not do this job:
A block can therefore be comprehensively insured as a building and leave its directors personally uninsured.
Volunteer directors of small companies are rarely sued, but the exposure is real and specific: allegations of breach of duty under the Companies Act 2006; disputes over service charge decisions or spending; alleged mismanagement of major works; discrimination or employment allegations where the company has staff; alleged failures in the company's handling of health and safety or building safety obligations; disputes with a former managing agent or contractor; and claims connected with financial administration or filing failures.
Even where a claim is ultimately unfounded, the cost of responding to it is not.
Directors' and officers' policies vary far more than buildings policies, so the useful work is in the detail:
Whether the premium can be charged to leaseholders depends on the lease. Some leases plainly permit insurance and management costs of this kind; others do not. Boards should check rather than assume, and where the position is unclear, say so openly rather than burying the item in a budget line. A cost that cannot properly be recovered is not made recoverable by nobody noticing.
Insurance is not a substitute for governance. Directors who take advice, keep minutes, declare conflicts, follow the lease and consult properly are far less likely to face a claim in the first place, and are in a much stronger position if they do. The right way to treat directors' and officers' cover is as a backstop for people acting properly, not as protection for people acting carelessly.
Directors weighing up their exposure often also review how the block is managed day to day. Our support for RTM company directors covers that side of it.
What matters most about this cover depends on your role in the company.
Assuming the buildings policy covers the directors
Buildings and property owners' liability cover the structure and third-party claims, not claims against directors personally.
Buying on premium alone
Limits, excesses, exclusions and whether defence costs erode the limit matter far more than a small difference in price.
Ignoring run-off cover
On a claims made policy, a director who resigns can be exposed to claims notified after the policy lapses.
Charging the premium to the service charge without checking the lease
Recoverability depends on the wording of the lease; assuming it is recoverable can create a challengeable charge.
Most questions on this topic are management questions rather than legal ones, and the two are worth separating. A managing agent can tell you how something works day to day and what it will cost. A solicitor tells you what your rights are and how a Tribunal is likely to view them.
East Valley Properties provides management expertise, not legal advice. Where a matter turns on the wording of your lease or on formal proceedings, we will say so and work alongside your solicitor.
The official material behind this guide. We summarise it in plain English rather than reproducing it.
The statutory duties directors owe to the company.
The insurance that is compulsory where the company has employees.
The right to manage framework and the company's functions.
Plain English guidance on running an RTM company.
We do not take commission on buildings insurance. Premiums are passed through at cost and the placing documents are shared with directors.
Answered by Romain Maillard - Director, East Valley Properties
Romain manages residential blocks and estates for RTM companies, residents' management companies, share of freehold developments and freeholders across East London and Essex.
Published
This answer has been anonymised. Personal details, addresses and company names have been removed. Guidance is general and does not replace advice from a solicitor or surveyor on your specific block. East Valley Properties is a managing agent, not a firm of solicitors or legal advisers.
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