Directors & Officers insurance (D&O)

D&O policy is an integral part of corporate risk management. It serves as a tool of financial protection of directors and managers if it is required to compensate any third party claims, which may arise from incorrect management decisions. Considerable changes to the Legislation of the Russian Federation hardened personal liability of directors and managers. A provision of the Supreme Arbitration Court Plenum reads that if a CEO violates their duty to act in favor of a legal entity reasonably and in good faith, they shall upon a request of the legal entity and (or) its founding shareholders (participants) reimburse any damage to them.

Article 53.1, introduced to the RF Civil Code, provides for the liability of the parties empowered to act on behalf of a legal entity, including members of the collegial body of the legal entity, to reimburse by request of a legal entity, its (founding) members, acting on behalf of the legal entity, any damages it caused to another legal entity. Article 71 under RF Federal Law ‘on Joint-Stock Companies’ also stipulates D&O liability.

Purpose of a D&O Policy
D&O policy was introduced to offer liability cover for company managers to protect them from claims, which may arise from the decisions and actions taken within the scope of their regular duties, as well as the company itself from unforeseen expenses in case of various claims. 

What expenses are reimbursed under the D&O policy?
D&O policy includes reimbursement of personal expenses of directors, and company expenses it incurred at advocacy of directors and at reimbursement of claim amounts against them, as well as various types of support and maintenance. E.g. expenses for legal / court (incl. bailment), consultants and experts in various fields, claim fact-finding etc. Coverage might include expenses for protection and recovery of business reputation due to negative publications, expenses for defense of rights and freedoms, extradition expenses, emergency expenses etc. Insurance coverage guarantees expenses for recovery of real damage and lost profit, legal or any other justified and rational expenses incurred by the Insured Party.

Who is the Policyholder and Insured Party under this Policy?
As a rule, the company acts as the Policyholder, and the Insureds are the employees taking management decisions – company top management: chief executive management body members (CEO, their deputies), collegial executive body (board) members, Board of Directors’ members, other employees, holding key positions in the company. The insurance provides cover not only to the company top management but also to the heads of the subsidiaries. 

Who can claim to the management under the policy?
A claim against directors and officers in the form of administrative and/or civil action on their indemnification of losses occurred due to their errors and omissions, while on duty, might originate from third parties (shareholders, personnel, competitors, clients, tax authorities etc.), as well as the companies.

What may the claims target?
- Low quality management decisions
- Careless investments
- Erroneous M&A policy
- Purchasing with no bidding
- Presumptive violation of the fair competition rules 
- Unjust spending of the company funds
- Inaccuracies and errors with data disclosure in reporting, offering circulars etc.

Factors affecting the insurance premium amount:
- Industry sector 
- Company assets 
- Financial state of the company
- Geography of the company activities
- Management structure and Directors’ background
- Listing
- Claims history

What are the standard policy exclusions?
- Criminal offenses following their final qualification 
- Property, life and health damage 
- Previously undisclosed circumstances and requirements
- Willful acts
- Personal benefit
- Fraud or manipulation at the stock market;
- Fines, taxes.
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