Professional indemnity: the executive's policy
Professional indemnity insurance responds when a client claims that advice or work was negligent and cost them money. For a fractional executive it is held by their own limited company, it travels with them from client to client, and it is a normal cost of doing business rather than something a client pays for directly.
What matters is whether the policy covers the work actually being done. A policy written for general management consultancy may not respond to a claim about regulated financial advice, an investment recommendation or legal work. The executive should be able to say, in a sentence, what their policy covers and whether this seat falls inside it.
A general counsel is the clearest case. A solicitor providing legal services through their own company to several clients is in a different regulatory position from an in-house lawyer with one employer, and the cover they need follows from that. That is a question for the solicitor and their regulator to settle before the engagement, not after.
Directors and officers cover: the company's policy
A directors and officers policy protects the individuals who run a company against claims brought against them personally for decisions taken in that role, by shareholders, creditors, regulators or employees. It is bought by the company and it covers people, not the company itself.
The question is whether a fractional executive is one of those people. If they are appointed to the board, they almost certainly should be. If they are not, it depends on how the policy defines an insured person, and some definitions reach employees in a managerial role while leaving an outside consultant out. Ask the broker to confirm in writing that the fractional executive is covered, by name or by role.
Ask about run-off as well. Claims often arrive after somebody has left, and a policy that stops covering a former officer the day the engagement ends leaves the riskiest period uncovered.
The director who was never appointed
A person who acts as a director can be treated as one in law without ever being appointed. A fractional CFO who runs the board pack, signs off the accounts and takes decisions the board then rubber-stamps may carry a director's duties whatever their contract calls them.
That is not a reason to avoid the arrangement. It is the reason the directors and officers check matters even when nobody intends to appoint the fractional executive to the board, and the reason the contract should say plainly which decisions stay with the board.
Who pays for what
| Policy | What it covers | Who normally holds it |
|---|---|---|
| Professional indemnity | Claims that the executive's advice or work was negligent | The executive's own company |
| Directors and officers | Personal claims against people running the company | The company, which should confirm it extends to the fractional executive |
| Public liability | Injury or damage to third parties | Each side for its own premises and activities; the executive's own if they work at other sites |
| Cyber | Breaches and incidents in the company's systems | The company, whoever caused the incident |
| Employers' liability | Claims by the company's employees | The company. It does not usually extend to a contractor |
What the contract should say
- That the executive holds professional indemnity cover suitable for the services, at a stated minimum, and will show evidence on request.
- That the company's directors and officers policy covers the executive, or that the company will arrange for it to.
- A liability cap that sits within the cover the executive actually holds, so the cap is a promise that can be kept.
- Who tells whom, and how quickly, if a claim or a circumstance that might lead to one comes up.
What to ask a broker
- Does our directors and officers policy define insured persons widely enough to include a non-employee officer or a consultant acting as one?
- Is there run-off cover for former officers, and for how long?
- Does anything change if the fractional executive is formally appointed to the board?
- Does the executive's professional indemnity policy cover this specific work, in this sector?
Common questions
Does a fractional CFO need professional indemnity insurance?
In practice, yes. It covers claims that their advice or work was negligent, it is held by their own company, and most clients will ask for evidence of it in the contract. The thing to check is that the policy covers the work in this seat, including any regulated advice.
Is a fractional executive covered by the company's D&O policy?
Only if the policy says so. A fractional executive appointed to the board usually is. One who is not depends on how the policy defines an insured person, so ask the broker to confirm in writing, and check run-off cover for claims made after the engagement ends.
Who pays for a fractional executive's insurance?
Each side pays for its own. The executive's company buys its professional indemnity cover as a cost of doing business, priced into the day rate. The company buys directors and officers, cyber and employers' liability cover, and confirms that its directors and officers policy extends to the fractional executive.
More of them, on hiring, contracts and what a fractional engagement costs, on the fractional executive FAQ.