In this article
Key points
- Directors and officers are personally liable with their own assets if their liability is established.
- D&O insurance covers justified claims and defends against unjustified ones.
- It protects the board of directors, executive management, de facto officers and even the pension committee.
- Bankruptcy, succession, new investors, reorganisation: these are the moments when it becomes indispensable.
In an increasingly complex regulatory and financial environment, the liability of corporate officers (members of the board of directors, managing directors, executives) is under growing pressure.
A single error or omission can put directors’ personal assets, and the stability of the company itself, at risk. Directors & Officers (D&O) insurance protects them against claims for damages and safeguards business continuity and stakeholder trust: it is a genuine strategic governance tool.
What is D&O insurance?
D&O insurance covers the civil, legal and financial liability of directors, members of executive management and de facto officers. In particular, it protects the personal assets of corporate officers against claims for damages arising from alleged errors made in the course of their duties.
The main advantages
- Continuity: directors can make decisions with peace of mind, knowing they have adequate cover.
- Personal assets protected: the policy covers claims for damages where liability is established and defends against unjustified or excessive claims (passive legal protection).
- Reputation: a D&O policy strengthens the company’s image of soundness with investors, clients and partners.
- Bankruptcy and insolvency: creditors may then turn to the corporate officers; the policy protects them.
Who is covered?
D&O cover is not limited to the board of directors. In particular, it protects:
- members of the board of directors, responsible for governance and strategic decisions;
- managing directors of limited liability companies (GmbH/Sàrl), in charge of operational management;
- officers of associations and foundations (executive committee, foundation board), often in complex and regulated environments;
- founding partners, liquidators and interim managers, involved in critical decisions such as a voluntary liquidation or a temporary management mandate;
- members of the in-house pension committee;
- de facto officers.
Cover also extends to new officers, subsidiaries and mandates in third-party companies: protection that evolves with you, invaluable during periods of growth or reorganisation.
What does a D&O policy cover?
D&O insurance covers claims for damages against corporate officers for the following breaches:
- Breach of duty by formal and de facto officers: Art. 754 para. 1 CO requires board members to act with the utmost care.
- Organisational and financial control failures, where inadequate management of internal procedures gives rise to liability.
- Questionable or omitted strategic, operational or financial decisions: unauthorised loans or investments, risky expansion, acquisitions.
- Failure to notify the court in the event of over-indebtedness, which exposes officers to serious legal risks (Art. 725b para. 3 CO).
- Misrepresentation of the financial situation: omissions, falsified accounts, fictitious entries or inflated values.
All past, present and future corporate officers of the policyholder and its subsidiaries are insured. The board of directors’ main tasks are its non-transferable and inalienable duties (Art. 716a CO). Cover includes:
- compensation for justified claims for damages against an insured officer;
- defence against unjustified claims (passive legal protection);
- expert, lawyers’, court and mediation fees;
- legal protection in criminal or administrative proceedings.
Extensions and exclusions
Cover extensions
- worldwide cover, including the United States and Canada;
- waiver of the gross negligence defence;
- employee claims (Employment Practices Liability, EPL);
- claims relating to direct and indirect taxes and social security contributions;
- emergency costs and imminent claims for damages;
- reputation costs;
- automatic cover for new officers, subsidiaries and third-party mandates;
- 5-year limitation period for claims arising from insurance benefits.
Typical exclusions
What a D&O policy excludes
Table 1| Exclusion | What you need to know |
|---|---|
| Professional liability | To be covered separately by corporate or professional liability insurance |
| Intentional breach of the law | No cover, but defence costs are advanced until a final judgment |
| Environmental pollution | Excluded in principle; defence costs against unjustified claims are covered |
| Corruption, unlawful advantages | Excluded in principle; defence costs against unjustified claims are covered |
Why D&O insurance is essential
Company directors are personally liable with their own assets if their liability is established.
Luca Ballinari, Assidu
This direct exposure shows how important D&O cover is: it protects directors’ assets, as well as the company’s reputation and stability. It becomes indispensable in several situations:
- Bankruptcy risk, the main risk inherent in any business activity.
- Succession, to avoid disputes during a delicate transition.
- A change of strategy: new objectives or investments, greater risks.
- New investors, who often require additional safeguards.
- A reorganisation: merger, acquisition or restructuring.
- A new board member, who may expressly require this cover.
Mistakes the board of directors should avoid
- Unsuitable composition: skills missing from the board.
- No clear strategy and no monitoring of it: poorly informed, wrong or late decisions.
- Inadequate risk management: no processes or tools, such as contingency plans, to anticipate risks.
- Poor internal communication: an ineffective flow of information between board members increases the risk of error.
- Meetings held too rarely, preventing timely decisions.
- Decisions implemented late or inadequately, at the expense of strategic objectives.
- An unclear division of responsibilities between the board and executive management, without regular oversight of management.
D&O insurance does more than reduce the financial impact of these mistakes: with the right support, it also helps corporate officers prevent critical situations.
Conclusion
Before taking out D&O cover, review your responsibilities and the risks in each area of governance, to identify the priorities for optimal protection.
A detailed analysis of the situation (company structure, an international programme if you have subsidiaries abroad) shows which cover is needed, what limits are appropriate and what the exclusions mean. Assidu supports you in this assessment and in building a lasting insurance strategy suited to your governance.
Property and Casualty Insurance Specialist · Insurance Specialist with Federal Diploma of Higher Education
