D&O insurance

from Wikipedia, the free encyclopedia

D&O insurance ( directors and officers insurance, also organ or manager liability insurance ) is a financial loss liability insurance that a company takes out for its executive bodies and executives . This is an insurance for the benefit of third parties, which is classified according to the type of professional liability insurance . The D&O insurance, however, only offers protection for the company's bodies and managers, but not for the company itself, which takes out D&O insurance for its bodies and managers. Insurance protection in relation to claims made by third parties against the company due to breaches of duty by its employees is provided by Errors & Omissions (E&O) or (British term) Professional Indemnity (PI) coverage.

history

The first attempts to introduce liability insurance for company managers were made in Germany as early as 1895 by the General German Insurance Association. However, an introduction initially failed due to rather moral concerns. After the usefulness of D&O insurance was recognized in the USA as early as the 1930s and there were considerable claims against managers there in the mid-1980s, this branch of insurance established itself in a broad market and gained more and more attention internationally. The real origin of the D&O insurance, however, can be found at Lloyd's of London . Nevertheless, the United States is commonly regarded as the origin of this insurance constitution.

scope

As a rule, all organs ( board of directors , management , supervisory board , advisory board , etc.) and executive employees ( authorized signatories ) of a company with their organ liability , who have to fulfill the care of a prudent and conscientious manager , are legally regulated, for example in § 93 , § 116 AktG for executive boards and supervisory boards or in § 43 , § 52 GmbHG for managing directors and company supervisory boards.

The insurance cover comprises two claims: the right to reimbursement of defense costs in the event of unfounded use (legal protection function) and the right to exemption from justified claims for damages (exemption function). The insured person is entitled to claim, not the policyholder. However, it is possible for the insured person to assign the indemnity claim to the injured company.

There is cover for breaches of duty of care without intent or knowledgeable breach of duty internally or externally. Normally, all financial losses that were caused during the insurance period and for which claims are made within the insurance term (“ claims-made principle”) are reimbursed. In addition, pecuniary losses that were previously caused are usually integrated into the insurance cover ("backward cover"), provided that the claim is made after the start of the contract and the insured person and the policyholder (usually the company) are not breached by the time the contract is concluded was known or could / should have been known.

Conversely, so-called late registration deadlines can be found in many D&O contracts. According to this, claims for damages are also covered by the insurance cover that are asserted within a limited period of time (usually six months to three years) after the termination of the contract and for which the underlying breach of duty dates to the period before the termination of the contract. If the insurer changes, the late registration period of the previous contract usually ends with the start of the new D&O insurance contract.

Basis for Claims

When it comes to claims, a fundamental distinction is made between internal and external liability. The vast majority of insured events relate to internal liability. Here, the insured person is protected against claims against the company or the company's organs such as supervisory bodies / supervisory boards or shareholders / owners. In the case of external liability, insurance claims are made by business partners (customers / suppliers), competitors, employees, supervisory authorities or other third parties.

Limits of D&O insurance

  1. The D&O insurance is a typical liability insurance - but not a comprehensive insurance . The central performance promise of the D&O policy is the defense against claims for damages in the context of directors' liability. If these claims prove to be justified, the indemnification and thus satisfaction of the injured company (balance sheet protection) takes place. In return, this also means that the insured person, i.e. the body, must be shown culpable misconduct in breach of duty (intent or disclaimer clause) that has led to a financial disadvantage on the part of the policyholder or a third party. The mere assertion or determination of an apparently “wrong” or unfavorable business decision is not sufficient. If, however, damage can be identified, the burden of proof is often reversed, i.e. the company manager has to prove that his decision was the right one despite the occurrence of the damage (important point here: the documentation of the decision-making process).
  2. In addition, so-called "personal damage", i.e. claims by companies against insured persons who have a stake in the company themselves, are only compensated to a limited extent, provided that there is no minor participation (limit here: 15-25% depending on the insurer; since mid-2007 Some providers completely dispense with the so-called "self-damage exclusion" in their concepts.
  3. The interests of all stakeholders in the event of damage extremely complex and often leads to a compromise ( compared , Eng. Deal ) is negotiated between the parties. This increased increase in board liability disputes, which can be observed in practice, B. between the supervisory board and the executive board is the basis for the currently observed upswing in so-called D&O excedent solutions for control bodies. Those focus on the special claims of controlling bodies in the event of a dispute with the board of directors or the company.
  4. With the " Act on the Appropriateness of Management Board Remuneration" (VorstAG) from 2009, a deductible was set in the D&O insurance for board members of a stock corporation under German law , a European company , a mutual insurance association and a limited partnership based on shares . It provides for a deductible of at least 10% of the damage up to a maximum of one and a half times the annual remuneration. The aim of the legislature is to avoid false incentives. The German Corporate Governance Code therefore also makes its application mandatory for supervisory boards. However, the legislature allows the group of people private protection. The insurance industry reacted and offered D&O deductible insurance.
  5. According to law and good faith, the coverage cannot be comprehensive. For example, it does not occur with intent. Depending on the provider and the risk situation, various exclusions limit the insurance cover, in some cases considerably. As a rule, the insurance conditions contain a so-called service exclusion, which means that pecuniary damage caused in the course of the operational activities of the insured person is not covered. The D&O policy protects the insured persons exclusively in their corporate function and does not include services that are directly provided by the bodies themselves. In practice, the exclusion of services often leads to the insurer rejecting cover.
  6. Reverse coverage: Some insurers only offer coverage for damage that was only caused and discovered after the contract was signed. Other insurers also cover damage that was only known after the conclusion of the contract, but the cause of which lies in the past (i.e. before the contract was concluded).
  7. A lack of knowledge and suitability for a department does not result in an exemption from liability. Employee representatives on the supervisory board in particular are subject to this problem.
  8. Even in the event of a breach of duty that is fundamentally covered by the insurance contract, insured board members may not be insured if the sum insured for the current insurance period has already been completely exhausted. This can be the case, in particular, in cases of directors' liability with a large number of managers of a corporate group who are called upon in parallel. Due to the high defense costs and the early satisfaction of the insurance claims of individual insured persons, the sum insured is sometimes exhausted before all liability processes are concluded.

Others

The D&O insurance is often supplemented by the protection of so-called ODL mandates (ODL = outside directorship liability ), i.e. when your own employees are posted to the bodies of external companies. Consistent expansion of coverage of companies offering in criminal law the so-called industrial liability insurance on and fidelity insurance (particularly against employees crime ). In the EU , through the implementation of the anti-discrimination directive, protection against legal protection claims under employment contracts (keyword EPLI - employment practices liability insurance ) is becoming more and more relevant. Insurance products are already available for this as well.

In addition, the so-called D&O procurement clause is now finding its way from the employment contracts of the DAX board members to the contracts of managing directors and board members in medium-sized companies. The aim of this clause is to demand a high level of quality in terms of D&O insurance and other manager insurance (e.g. protection from criminal law) from the employer in order to be able to refer to this in the event of a claim. The more comprehensive and tailored, the more extensive the liability transfer to the employer. In practice, the D&O procurement clause is formulated by experienced lawyers specializing in labor law and insurance law . Their triumphant advance is also due to the fact that this vehicle is able to map risk minimization in the employment contract also in legal forms such as the stock corporation , in which the effect of liability clauses is limited.

literature

  • Bandle, L'assurance D&O (with German and English summary), Lausanne, 1999
  • Ihlas, D&O Liability and Liability Insurance, Duncker and Humblot, Berlin 1997
  • Gruber / Mitterlechner / Wax, D&O insurance with international references, Verlag CH Beck, 2012
  • Pammler, The company-financed D&O insurance in the area of ​​conflict of company law, Duncker and Humblot, Berlin 2006
  • Rahlmeyer, Management Board Liability Between Traditional German Stock Corporation Law and Capital Market-Oriented Corporate Governance, Nomos, Baden-Baden 2010
  • Schug, Risk Limitation and Transfer in Board Liability, Nomos, Baden-Baden 2010
  • Thümmel, Personal Liability of Managers and Supervisory Boards, 4th edition, Boorberg, Stuttgart 2008
  • Schilling, manager liability and insurance protection for company managers and supervisory boards, 2nd edition, Verl. Versicherungswirtschaft, Karlsruhe 2007
  • Schmitt, D&O insurance, Munich legal contributions 61, Munich 2007
  • Olbrich, Die D&O-Versicherung, 2nd edition, Verl. Versicherungswirtschaft, Karlsruhe 2007
  • Hendricks Michael, Der GmbH Managing Director, EUROFORUM Verlag GmbH, Düsseldorf 2005
  • Ihlas, Horst, D & O: Directors & Officers Liability, 2nd edition 2009, Duncker & Humblot, Berlin
  • Ries, tormentor, liability and insurance of managers, 2nd edition 2009, Walhalla Verlag Regensburg
  • Laschet / Held, Advisor for managing directors liability and D&O insurance, Verlag Versicherungswirtschaft, 3rd edition Karlsruhe 2019, ISBN 978-3-96329-048-0
  • Zurlutter, interaction between directors 'and officers' liability and D&O insurance, NJW-aktuell, issue 4/2016, p. 16

Web links

Individual evidence

  1. ↑ WirtschaftsWoche No. 33 of August 13, 2007, p. 82.
  2. ↑ See Thümmel, Personal Liability of Managers and Supervisory Boards, Rn. 403
  3. ↑ Fabian Herdter: Assignment of the right to exemption in the D&O insurance. In: Die Versicherungspraxis. September 2012, accessed January 26, 2018 .
  4. ↑ D&O insurance in supervisory board practice | Supervisory board protection. In: aufsichtsrat-absicherung.de. Retrieved December 30, 2016 .
  5. ↑ D&O insurance in supervisory board practice | Supervisory board protection. In: aufsichtsrat-absicherung.de. Retrieved December 30, 2016 .
  6. ↑ Lukas David: Deductible in the D&O: briefly explained. Team of Experts D&O Insurance, June 19, 2017, accessed on August 29, 2017 (German).
  7. ↑ Exemption from liability & D&O procurement clause | How to free yourself in 2018! In: D&O Insurance #neugedacht . ( directors-and-officers-versicherung.com [accessed July 6, 2018]).