During their activity, administrators and managers have to carry out actions and make decisions that, on occasions, may harm other individuals. Therefore, it is a good idea for these professionals to be covered with D&O insurance.
The D&O insurance protects the high positions of a company against claims from third parties who have been harmed by incorrect, real or presumed acts, committed in the exercise of their functions.
Why is Insurance for Executives Necessary?
Mainly because the laws make it clear that the directors of the companies, and not only these, have responsibility in case they cause damage or harm to third parties, directly or indirectly.
A responsibility that, if it entails compensation, can directly affect your personal assets.
Possible claims to a Manager
A manager can receive claims from:
- Shareholders, due to inaccuracy in the information provided or merger or acquisition processes.
- Employees, for breach of contract, illegal dismissal or harassment.
- Creditors, due to unjustified breach of the contract or bad financial situation of the company.
- Competitors, for violation of market practices or unfair competition.
- Public bodies, for tax or administrative offenses or employment practices.
- Liquidators of the company, for the decision-making and actions that have led the company to this situation.
- Buyers of the company, due to inaccuracy or falsity of the information provided or concealment of data necessary for the operation.
And, ultimately, any third party who feels harmed by poor administration, management or negligence of the company’s managers.
What does D&O Insurance Cover?
D&O insurance basically covers the defense expenses of the directors and the possible compensation that they have to pay in the event that a court finds them guilty of an incorrect act, either by action or omission.
In addition, this policy usually has coverage such as investigative expenses in administrative proceedings, company reimbursement, public image restoration expenses, bankruptcy liability, administrative fines or claims for improper employment practices, among others.
Advantages of taking out D&O Insurance for Executives
D&O insurance guarantees the manager economic protection against liability claims, not having to face compensation for claims.
However, and regardless of other powers that the company may have, this insurance protects against the individual liability of the manager or administrator, leaving their private assets safe.
Types of D&O Insurance and Requirements to Hire Them
This insurance is usually contracted by the company, the insured being the manager.
It is not necessary, in any case, to identify senior officials, since the policy covers natural persons who have been, are or will become administrators, directors or executives of the company.
In the event that a company does not have this policy, the professional himself can subscribe it personally, for greater protection of his personal assets, not covered by the company’s RC.
Although at first the insurers do not usually establish requirements to contract this insurance, some of them do propose a prior questionnaire to assess and study each of the D&O risks to which the company is exposed in order to accept or reject their contracting.