Directors can be sued personally, and the company often cannot lawfully pay the bill. Directors and officers (D&O) liability insurance exists for that gap. This article explains what the cover is, what the Companies Act, 2015 allows a company to buy and what it forbids it to promise, and what to check before signing a policy in Kenya.
What D&O insurance is
D&O insurance protects directors and senior officers against claims arising from their conduct in office. Typically it pays defence costs and, subject to the policy terms, damages or settlements. Claims can come from shareholders, creditors, regulators, employees or liquidators. The policy pays the insured person, or reimburses the company where the company has lawfully paid on the person’s behalf.
Why a company cannot simply promise an indemnity
Section 194 of the Companies Act makes two kinds of provision void. First, any provision that purports to exempt a director from liability for negligence, default, breach of duty or breach of trust in relation to the company. Second, any provision by which the company indemnifies a director, directly or indirectly, against that liability, except as the Act permits. The rule covers the company’s constitution and any contract or arrangement to which the company or a related company is a party.
That is why a clause in a director’s appointment letter saying “the company will cover all your liabilities” does not do what the director hopes. To the extent it covers the liabilities in section 194, it is void.
What the Act does allow
- Insurance. Section 195 says section 194(3) does not prevent a company from purchasing and maintaining insurance against those liabilities for a director of the company or of an associated company. D&O cover is lawful.
- Qualifying third party indemnity. Section 196 provides that section 194(3) does not apply to a qualifying third party indemnity provision, an indemnity against certain liabilities to persons other than the company, within limits the section sets. The conditions are technical, so read section 196 itself, or take advice, before relying on an indemnity clause.
The practical order is: use an indemnity only within section 196, and use insurance for the rest.
Does the market sell it in Kenya?
Yes. D&O is a recognised class of liability insurance in Kenya. At least two local insurers publish D&O products: GA Insurance Kenya lists a Directors and Officers Liability Insurance Policy, and MUA Insurance (Kenya) has been reported as offering D&O cover. Others may underwrite it, and international programmes are placed through brokers. The availability, price and terms depend on the company’s size, sector, claims history and financial position, so ask a licensed insurance broker to approach several insurers and compare wordings.
What to check in the policy
- Who is insured. Current and past directors, officers, and ideally the directors of subsidiaries and associated companies.
- Claims-made basis. Most D&O policies respond to claims first made during the policy period. Ask about retroactive dates and run-off cover for directors who leave.
- Limit and defence costs. Check whether defence costs erode the limit, and whether the limit is shared with the company.
- Exclusions. Typical exclusions include fraud and deliberate wrongdoing established by final judgment, fines and penalties, and claims already notified. Regulatory investigations may need an extension.
- Side A, B and C. Separate cover for individuals who cannot be indemnified, for the company’s reimbursement of directors, and for the company itself where included.
- Who pays. Section 195 permits the company to pay the premium. Document that the board approved it.
Practical points on price and process
Insurers usually ask for a proposal form, recent financial statements and details of any prior claims or circumstances. Disclose fully. A policy can be avoided or a claim declined for non-disclosure, which defeats the purpose of buying cover. Allow several weeks, and tell your broker about planned changes such as new investors, a listing or an acquisition, because these change the risk and the pricing. Review the limit each year as the business grows.
For regulated companies and incoming directors
An incoming director, especially an independent or non-executive one, should ask in writing before accepting the seat whether the company holds D&O cover, for what limit, and whether the new director will be added from the appointment date. If there is no cover, ask for it as a condition, or for a clear statement of the indemnity the company can lawfully give under section 196. Boards of licensed businesses should review cover alongside the governance duties set out in our article on a director’s legal duties.
How We Can Help
Clay & Associates Advocates reviews director appointment terms, indemnity clauses and insurance arrangements, and advises boards on directors’ liability. For the structure of the appointment itself, see our article on staffing the board. Contact our corporate and commercial team to discuss your board’s protection.
Sources: Companies Act, 2015 (Cap. 486), sections 194, 195 and 196; Newsline, Directors and officers insurance is changing the way Kenyan boards manage risk (14 May 2026); GA Insurance Kenya, Directors and Officers Liability Insurance Policy.
Frequently asked questions
Can a Kenyan company pay for its directors’ D&O insurance?
Yes. Section 195 of the Companies Act provides that the restriction on indemnities does not stop a company buying and maintaining insurance for its directors.
Can a company indemnify a director for negligence?
Not for liability to the company itself. Section 194(3) makes such an indemnity void except as the Act permits. Insurance and qualifying third party indemnities are the permitted routes.
Does D&O cover fraud?
Policies generally exclude deliberate fraud once it is established, though they may fund defence costs until then. Read the exclusion and the conduct wording closely.
Is D&O cover compulsory?
We have not found a general requirement in the Companies Act. Some sector regulators or investors may expect it, so check the licence conditions and any shareholder agreement.
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This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.
