Surely we have all heard of the directors and officers insurance policy (in our industry, we call it D&O). Today we will explain why it is taken out and how we can prevent claims.
Directors’ liability under current legislation
In Spain, it is marketed due to Article 236 of the Capital Companies Law, which we will analyze later, and which, fundamentally, exposes company officers to indemnities that would be paid with their private money, not with that of the company. We see.
As we pointed out, Art. 236 states, textually:
The directors shall be 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 made in breach of the duties inherent to the performance of the position
…
This article has a compensatory purpose. It intends that the administrator who adopted a negligent decision, compensates the company for the losses or damages caused.
What decisions expose managers to these claims?
- Business decisions: making a “negligent” decision that may trigger potential claims from customers, suppliers or employees who believe that it has caused them harm.
- An employee may sue us because he or she considers that he or she has been discriminated against in the face of a promotion of a colleague; or even for harassment.
- In the event of an insolvency proceeding, because it is understood that the decisions of those responsible have been inadequate and culpable for the situation in which the company finds itself.
- Etc., etc., etc.
As we can see, the casuistry is infinite. For this very reason, it is essential to take out a policy whose terms and conditions are as simple as possible, and include as many assumptions and guarantees as possible.
The importance of being well defended in commercial matters
At the same time, it is important that in this type of situations in which an administrator can find himself, he is defended by lawyers with experience in this type of claims. The companies provide experienced law firms that know how to act in these situations, and whose fees are very high, so that if we did not have this policy we would also face these expenses with our own resources.
We leave you a “decalogue” of the good manager, courtesy of the insurance company HISCOX (specialized in this type of D&O policies), which perfectly summarizes the obligations of every good businessman:
Recently, in this type of claim, the company is usually sued in the same proceeding in which an administrator is sued; therefore, it is important that the company is contemplated in the legal entity as insured of this policy.
If this is an issue that concerns you, whether you are in an SME or a large company, and you want to be protected, do not hesitate and call us or click HERE.
If you still want to learn more about this topic, another specialized insurer, Berkley, talks about D&O insurance. D&O insurance in depth in this link, where it includes: legislation applicable to the executive, what are the risks and offers advice when taking out the insurance.
