D&O corporate insurance is now a regular feature of a company’s insurance portfolio, both in medium-sized enterprises and in large businesses and financial service providers.
What is insured?
If a manager is accused of breach of duty and a claim is made for compensation for the financial loss resulting from the alleged breach (insured event), it is the task of the D&O insurer to examine the liability issue, to defend against unjustified claims against the manager and – if the defence fails – to pay out the compensation on behalf of the manager.
This means that when a claim is made, the right to the insurance benefit lies with the manager himself. When a claim is made, the company itself does not generally have any beneficiary rights, even though in many cases it is the claimant and pays the premium (exception: in some cases, D&O corporate insurance includes cover components that can also be available to the company). The costs to the company for the legal pursuit of managers must be borne by the company itself and cannot be insured elsewhere.
In addition to these typical functions of third party liability insurance, there are generally also other cover components that can protect the manager in certain situations (e.g. assumption of legal costs in the event of premature termination of a contract of employment in advance of a compensation claim, criminal-law protection, cost of reducing reputation damage, etc.).
Who is insured?
In most cases, the company arranges insurance in favour of all managers on a general basis (without identifying them by name) and pays the insurance premium as a tax-deductible operational expense (D&O corporate policy). Normally the managers of all subsidiaries worldwide are insured.
Managers and therefore “insured persons” in the context of D&O insurance are typically:
- Members of executive bodies (board, executive management, etc.)
- Members of control bodies (supervisory board, advisory board, etc.)
- Other groups that perform management functions or that have a special position in the company (general agents, official signatories, executives, compliance officers, etc.)
In individual cases, a D&O corporate policy can be backed up with “D&O supplementary products” such as a separate D&O corporate policy in favour of a departing manager or (exclusively) in favour of the supervisory board, the managers of a group parent company, etc.
In addition a PTL- (Fiduciary) insurance covers the unaffiliated assets of a pension trust. With a combined D&O- und E&O-coverage the pension trust and its managers are protected.
Who provides the insurance?
Germany now has a large number of D&O insurers, currently around 35. Because companies are increasingly required to implement international insurance programs (so-called master and local policies) due to their global activities and more stringent compliance requirements, the number of possible “management insurers” is realistically less than ten.