D&O Insurance Germany (Directors and Officers)

What makes a good D&O insurance policy

Great responsibility – great risks

Managers, business people and supervisory board members are liable with all their assets if they inadvertently cause high costs through a breach of their duty of care. The mistake does not even have to have been made by them personally. D&O insurance – „Directors & Officers“ insurance – was developed to cover this risk. It protects against

• Claims for damages by the (internal liability)
• claims for damages from third parties, e.g. customers or business partners (external liability)

A good D&O insurance policy has a sufficiently high sum insured and provides benefits that go beyond the settlement of claims for damages.

8 Benefits of a high-performance D&O insurance policy

• Insures even very high financial losses
• Defense against unjustified claims, assumption of investigation costs to refute accusations
• Defense against reputational damage
• Compensation for lost salary payments
• Maximum sum insured can be called up twice a year
• Reinsurance possible
• 10 years subsequent liability

What costs are covered by D&O insurance in the event of a claim?

In the sense of a pecuniary loss liability insurance, the D&O insurance covers costs that may arise after wrong decisions or errors in instructions or through omissions at the management level of a company.

Claims are made by third parties, by business partners, service providers, customers and, via internal liability, by the company itself. Within the scope of the sum insured, the D&O insurance covers the indemnification of claims for damages. It also bears legal costs for examination, clarification and, if necessary, rejection of (unjustified) claims.

• Cost assumption of the D&O insurance in the external liability
• External liability occurs when a management body of a company damages a third party through one of its decisions (or an omission in breach of duty). Third parties are all outsiders of a company:
• business and contract partners
• Project partners
• suppliers and service providers
• customers, buyers, intermediaries

What is the premium based on, and what factors influence the premium rate?

The premium in the D&O insurance is fundamentally based on

• The amount of coverage
• Term of the insurance contract

Depending on the insurance contract

• Previous insurances
• previous damage

Are also taken into account when determining the rate.

The duration and scope of prior insurance (possibly also in the sense of professional liability insurance, etc.) can act as an influencing factor on the D&O insurance. The prerequisite is the connection in terms of content or the overlapping of liability contents of the respective prior insurance.

The absence of claims (determination of prior claims) from existing D&O insurance policies is also considered, depending on the circumstances, as a factor to influence the rate of the D&O insurance.

Company and individual policies that were previously in force or covered a previous risk area can also be taken into account. In certain situations, it is worthwhile to adjust the D&O insurance or even to take out a new policy. Particular attention should generally be paid to the adjustment of the coverage amount when switching.

Depending on the business field and the differentiation of the professional fields and risk areas, the statistical coverage varies over a certain number of insurance years. Analogous to liability insurance, coverage sums also lose their topicality in D&O insurance. If necessary, a dynamic adjustment of the sum insured can be agreed.

When does D&O insurance make sense?

A D&O insurance makes sense for companies as well as for managers or directors in order to be covered in case of wrong decisions.

Advantages for managers

• Protection of own assets in case of damage and liability
• Liability is also assumed for colleagues of the management
• Exemption from liability for managing directors of a GmbH
• Possibility to make decisions more easily

Advantages for companies

• Protection of corporate reputation
• Protection of balance sheets
• In the event of a claim, the company’s ability to continue as a going concern is ensured

Why is D&O insurance indispensable?

Without adequate insurance, directors, managers, works council members and other executives bear personal liability. Directors‘ and officers‘ liability law defines claims in detail and applies strictly in the event of damage.

Decision-makers of a company with corresponding decision-making responsibility are liable with their entire assets. This means that breaches of duty that cause damage are subject to unlimited personal liability in the respective company or to third parties. Negligent actions can already have existentially threatening effects, which is why appropriate insurance protection through D&O insurance saves these damages, or costs, and offers you sensible coverage.

One option for reliable insurance protection is to take out a D&O insurance policy for senior employees. In Germany, this special manager liability insurance offers elementary and long-established protection for executives of all kinds. A D&O insurance comparison of the various tariffs makes sense in any case with regard to benefits and price.

For whom is the D&O insurance intended?

D&O insurance can be taken out for these functions, for example:

• Managing directors
• Members of controlling bodies (e.g. supervisory board)
• Senior executives (authorized signatories)
• Board members, treasurers and auditors of associations
• Decision-makers in foundations

When does the D&O insurance not pay?

D&O insurance pays out in the event of financial loss. The insurance only provides liability protection, not comprehensive cover. This means that financial losses suffered by board members themselves in the course of their work are not normally covered.

In principle, D&O insurance only protects the individuals concerned, not the company. The company remains liable to third parties irrespective of the board member’s responsibility. In the case of intentional breaches of duty, the D&O insurance does not generally provide cover. Also excluded are damages caused by a lack of aptitude or knowledge on the part of the person concerned.

Overview: When does the insurance not pay?

• In case of property damage and personal injury
• In the case of demonstrable intentional or deliberate breach of duty
• In the case of damage suffered by the members of the governing body

Possible exclusions

Depending on the tariff, there are exclusions to insurance coverage to consider. Possible exclusions include:

• Self-inflicted damage exclusion: In many D&O policies, insurance coverage is excluded or limited if board members themselves own company shares to a significant extent.
• Service exclusion: If a service exclusion is provided for in the insurance contract, the insurance will only kick in if a financial loss occurs in the exercise of the board function, but not in the case of „wrong decisions“ in day-to-day operations.
• Exclusion of retroactive coverage: If no retroactive coverage is provided for, the insurance will only pay out in the event of damage that was not caused until after the contract was concluded.
• Special rules for certain countries, e.g. exclusion of the USA with otherwise worldwide coverage.

The scope of the D&O insurance policy

The insurance cover extends to all groups of persons named in the contract and generally applies not only to functions in the respective company, but also in subsidiaries. In the case of third-party mandates – functions in external companies, joint ventures, associations – it depends on the respective insurance policy. Often, coverage for so-called ODL mandates (ODL = Outside Directorship Liability) is offered as an option. The insurance cover often applies worldwide, but some insurers exclude certain regions (USA, Canada, common law states).

Financial loss before the start of the contract

If possible, the scope of benefits of a D&O insurance policy should also include so-called retroactive coverage. This means that the insurance covers claims arising from damage caused before the start of the insurance term. This makes sense because the policyholder may not become aware of a loss until after the insurance policy has been taken out.

Whether claims whose cause lies prior to the inception of the policy are also covered depends on whether there is a retroactive insurance policy and whether the insurance company operates according to the claims-made principle or the breach principle. The best way to find out the extent to which new subsidiaries are reinsured is to consult the insurance terms and conditions.

Claims-made principle
The insurer’s obligation to pay benefits is triggered by the assertion of liability claims, even if their cause existed before the contract was concluded.

Breach principle
The insurer is only obliged to pay benefits if the breach of duty falls within the contract period of the D&O insurance.

Subsequent notification deadlines

It is possible that a claim only becomes known after the policyholder has already terminated the D&O insurance or the contract has expired. In this case, many policies contain so-called post-notification periods: the insurance company continues to cover the loss even after the contract has ended. Depending on the provider, the subsequent notification period is between three and ten years.