D&O Insurance: Provides protection for Executives and Directors

D&O Insurance: What Is It, and Why Should You Have It If You're an Executive?

The pandemic has exacerbated a trend that had been gaining momentum since the global financial crisis began to take hold in 2008: the rise in the number of complaints against corporate executives and directors.
After the news landscape of recent years was marked by negative stories involving executives and their decisions, the mitigation measures imposed by the government and health authorities have forced many companies to resort to remote work and layoffs—measures that have led to an increase in complaints against companies and ultimately made D&O (Directors & Officers) insurance an increasingly sought-after product.

What is D&O (Directors & Officers) Insurance?

In practice, this insurance—which can be translated into Portuguese as “directors” and officers’ liability insurance”—is designed to protect directors, managers, and executives against lawsuits filed by third parties, such as government regulatory agencies, clients, liquidators, or administrators, or even by their own company.
In terms of coverage, this type of insurance covers expenses related to the fees of outside attorneys retained to defend a director or officer in such legal proceedings, as well as damages and settlements, provided that no fraudulent conduct is established against them.
Although it does not resolve any criminal issues, D&O insurance helps cover the risks of liability claims and provides legal defense for executives.

Most Common Types of Complaints

Although many complaints cut across all sectors of activity and company sizes, there are some differences worth highlighting.
For example, in the case of PSI-20 companies—that is, publicly traded companies—complaints come mainly from the shareholders themselves, whereas in labor-intensive SMEs operating in sectors more exposed to occupational risks, complaints generally stem from violations of labor law—a trend that has intensified during the current economic crisis resulting from the pandemic.
In addition to individual complaints, claims may take the form of class-action lawsuits, well-known examples of which include the “BES victims” and the Coelima textile workers. In these cases, driven by a common cause, a group of customers or employees files a class-action lawsuit against a specific company in court.
Although, after reviewing the claims, many of these cases ultimately result in the insured being held not liable, this still requires the director or officer to defend themselves and incur costs associated with that defense—something that the D&O policy covers.

Generally speaking, since 2005, of the thousands of claims filed in Europe regarding the civil liability of directors and officers, the main sources of these claims are:

• Regulatory and criminal proceedings, including cases involving corruption, antitrust, and asset misappropriation;
• Bankruptcy proceedings initiated by liquidators;
• Claims brought against directors by the company or interested parties for breach of fiduciary duties;
• Complaints filed by third parties against the company, for example regarding anticompetitive conduct or the fraudulent appointment of directors as co-defendants;
• M&A (mergers and acquisitions) claims alleging unfair treatment or valuation;
• Securities-related lawsuits filed by interested parties or regulators against companies with listed securities.

Reasons to Purchase D&O Insurance from EXS Seguros

As we have already touched on, amid a growing number of complaints and, consequently, lawsuits against corporate administrators, managers, and directors, it is important for these individuals to protect themselves, among other things, against potential reputational and financial damage that may result from such situations.
This is where D&O insurance comes in—insurance from EXS Seguros for directors, managers, executives, and administrators against hostile lawsuits filed by third parties—which will protect you against the following situations:

• Legal Actions and Investigations

To prepare the company for legal actions and investigations by government agencies, competent authorities, or regulatory bodies, as well as by employees, competitors, and other stakeholders, EXS Seguros“ D&O insurance offers protection against any ”actual or alleged act, error, or omission,” regardless of who makes the allegation

• Increasing number of claims

As we mentioned, given the growing number of claims against companies and directors, the best time to purchase D&O insurance is when the claims landscape begins to deteriorate, but before the company and its directors themselves become the target of any claims.

• Scope of Legal Actions

Lawsuits could potentially result in damages that could easily reach millions of euros.
Since the amounts involved in civil liability lawsuits against directors and officers can come as a shock to companies and their directors when they are first faced with such a lawsuit, EXS Seguros offers D&O insurance with a limit of up to 25 million euros and international coverage, which means that if a claim is filed against directors in an international jurisdiction, they will be able to benefit from whichever EXS Seguros D&O policy offers the most favorable coverage for that jurisdiction.

• Trauma caused by legal proceedings

In addition to the financial impact on the company and its directors, the lawsuits cause emotional distress that is no less significant.
Lawsuits filed regarding the civil liability of directors and officers can be extremely draining and cause company leaders to lose focus on their business.

Claims directly concern the actions and conduct of individuals, and resolving them can take years and be very costly; therefore, EXS Seguros’ D&O insurance provides these executives with comprehensive coverage against such situations.

• Innocent directors

The company and its directors may be free from any fault, but that does not mean they are exempt from defending themselves.
To help them, EXS Seguros’ D&O insurance policies protect policyholders against actual or alleged acts.

• The Company does not cover the costs

When a company is unwilling to bear the costs charged to its directors, EXS Seguros’ D&O insurance addresses this situation by providing protection to directors regardless of whether or not the employer is able to cover the costs they incur for legal defense, damages, and settlements.
The same ultimately happens if the company lacks the financial resources to cover the liabilities incurred by its directors. In this case as well, EXS Seguros’ D&O insurance provides coverage, protecting policyholders regardless of the company’s financial situation.

• The Company is not authorized to pay

It is not uncommon for companies, despite their best intentions, to be legally barred from covering the costs of defending their directors.
D&O insurance addresses this situation and covers defense costs until fraud is actually proven.
Ask us for a no-obligation quote.