Are you an administrator or manager of a company? Do you know what you risk when a serious problem arises in the company? On more than one occasion we have encountered major scares due to lack of knowledge. The insurance for directors are usually unknown until you find yourself in the situation of needing them. And it can happen that the top managers of a company, when faced with a major problem in the company, may have to risk their personal assets to solve it, unless they take out insurance for top managers. Don’t worry, don’t panic, we will explain everything: what insurance of these characteristics consists of, coverage, etc.
Why directors and officers insurance?
Fundamentally, as a result of changes in legislation, you may find yourself criminally liable for what happened in the company.
Recent amendments to the Criminal Code and the Capital Companies Law make companies liable for the actions of their administrators and directors, which translates into direct liability in the last instance. Article 236 of the Capital Companies Act, states textually that:
The directors are liable to the company, to the shareholders and to the company’s creditors, for the damage caused by acts or omissions contrary to the law or the bylaws or for those performed in breach of the duties inherent in the performance of the position…
In other words, the directors become responsible for everything that happens in the management of the company, and for this reason they will be personally and unlimitedly liable with their assets before the law for the damages they may cause to third parties through their management.
For all these reasons, a D&O insurance policy for directors “and officers” liability is essential to provide protection in these situations.
When talking about this type of insurance for executives, it is also important to talk about “compliance”, the procedures that allow companies to implement protocols that guarantee compliance with regulations and good practices.
The “marriage” between D&O insurance and “compliance” insurance minimizes the risk of negligence and, in the event of negligence, facilitates its resolution. Compliance is, so to speak, a regulatory compliance plan, the purpose of which is to prevent a management problem that could trigger a larger problem. If we add to this the civil liability insurance for administrators and managers, we have the company shielded against major unforeseen events.
To whom can they complain and who usually complains?
In each company there are usually several decision-makers, and each of these persons is susceptible to receive claims. Let’s not forget that any person interested in the company can make a claim: employees, partners, shareholders, creditors, customers…
Therefore, any claim that is presented to the company and that is related to negligence in management, should be assumed by the manager or administrator, and this can generate really important expenses for the figure of the manager.
The directors and officers liability insurance, or D&O insurance, offers coverage to help settle any liability arising from a claim during the exercise of the position as director. What it does is to protect their personal assets against third party claims by transferring to the insurance company the responsibility for dealing with the claim.
Senior management insurance can be defined as a coverage aimed at managers, executives, directors or administrators of companies in order to guarantee their personal liability. In this way, their assets are protected against claims from third parties (suppliers, creditors, employees, shareholders, etc.) arising from their business decisions.
In addition, with the increase in demand for this type of insurance, and the increase in competition between companies, this insurance costs much less than you might imagine.
What kind of claims are covered by the directors’ insurance?
Once we are clear that the senior management insurance can help us to solve problems of company management generated by error or omission, let’s see what kind of claims are covered. Before going into details, let’s not forget that we are going to talk in general, and then each policy, contracted in a particular way, will have its own special characteristics.
And, of course, we should not think that this can only happen in large companies. Whether your company has 5 employees or 50, it is advisable to be aware of this coverage and consider hiring it. You know that if you have any doubts, you can count on us.
In order to see the different types of scenarios that we may encounter, we will consider the most common situations: claims from employees, creditors and shareholders.
- Employee claims: here we may face claims ranging from discrimination or harassment situations, dismissals, etc.
- Claims by creditors: most of them are related to omission or concealment of information, actions to the detriment of the company and for their own benefit, fraudulent contracts, etc.
- Shareholder claims: the most common are claims related to mismanagement of the company, fraudulent activities or misleading actions, breach of bylaws, insider trading…
The most common coverages are:
- Civil liability of directors and officers of the company.
- Defense expenses.
- Expenses for investigation/proceedings before administrative bodies.
- Emergency expenses.
- New subsidiaries
- Administrative sanctions
- Claims in labor matters due to improper employment practices.
- Advertising, communication or reputation protection expenses.
- Civil bonds
- Costs of creation and maintenance of criminal bonds.
- Professional disqualification
- Subsidiary tax liability
- Bankruptcy civil liability
- Corporate criminal liability
- Unlimited Retroactivity
- Worldwide territorial scope
And let us not forget that a large part of the payments through these insurances go to legal defense, to the payment of lawyers and legal expenses. Even if a claim is unfounded, it is necessary to look for lawyers and a team to defend us.
Given the complexity of this type of insurance, PIB Group Iberia is at your disposal to help you choose the best protection for your company or enterprise to grow in a healthy, legally responsible and beneficial way for you.
If you still have more doubts, in this link coninformaciónseguro D&O you can learn more about: legislation applicable to executives, their risks and key aspects when taking out this insurance. And, if you want to see which are the best insurance policies for executives, we leave you our selection.
