Running a business carries a high level of risk. In
the case of companies limited by shares, wrong
decisions can result in adverse financial
consequences not only for the company as such, but
also for individuals with responsibility for the
management of the company’s affairs. For this
reason, it is advisable to consider the option of
taking out Directors’ and Officers’ liability
insurance (D&O Insurance).
D&O Insurance provides protection against the
third-party liability of management staff of
companies limited by shares. While this insurance is
designed specifically with management board
members in mind, it may also be used, depending
on the provisions of the particular contract, by
members of supervisory boards and audit
committees, liquidators, chief accountants and
other persons involved in the running of a company.
Its principal purpose is to provide insurance cover
against the risk of third-party claims (and also
claims brought by their own company) for
compensation for damage suffered due to wrong
actions of individuals covered by this insurance.
The responsibilities of management board members
frequently call for taking tough decisions that carry
a significant economic risk, but such decisions are
often indispensable in ensuring the further
development of the company. In such contingencies
D&O Insurance may provide an umbrella of
protection for the company and for people running
its affairs. Management board members, as well as
other individuals covered by this insurance, can
perform their duties more effectively, since they
are not stymied in their actions by the fear of being
held personally financially liable. On the other
hand, the company also benefits from the
protection because when exposed to damage it is
able to claim a payment of compensation from the
insurer to offset the adverse effects of actions on
the part of individuals managing its business. For
these reasons, it is not just managerial staff, but
also companies that may be interested in taking out
D&O Insurance and that can benefit indirectly from
the advantages provided by such insurance cover.
When the prospective policyholder is to be a
company, it is worth considering all arguments for
and against the purchase of D&O Insurance. One
possible argument in favour of the purchase is that
in the case of the occurrence of damage, the
likelihood that the related claim will be satisfied is
greater in the case of an insurance company than
an insured private individual. However, an
argument against the purchase of the insurance is
the expense associated therewith, and the fact that
having such a guarantee may incline the insured
individuals to be less attentive in the running of the
company’s affairs because of the assurance that
they would not be liable with their own assets in
the event damage occurs.
D&O Insurance belongs in the category of insurance
products that are “tailored” to individual needs,
which accounts for considerable differences among
its available variants. Therefore, you should
carefully study the provisions of insurance contracts
and consult experienced lawyers if you have any
doubts.
MILLER, CANFIELD,
W. BABICKI, A. CHEŁCHOWSKI I WSPÓLNICY SP.K.
ul. Batorego 28-32
81-366 Gdynia
Tel. +48 58 782-0050
Fax +48 58 782-0060
gdynia@pl.millercanfield.com
ul. Nowogrodzka 11
00-513 Warszawa
Tel. +48 22 447-4300
Fax +48 22 447-4301
warszawa@pl.millercanfield.com
ul. Skarbowców 23a
53-125 Wrocław
Tel. +48 71 780-3100
Fax +48 71 780-3101
wroclaw@pl.millercanfield.com
Disclaimer: This publication has been prepared for clients and professional associates of Miller Canfield. It is intended to provide only a summary of
certain recent legal developments of selected areas of law. For this reason the information contained in this publication should not form the basis of any
decision as to a particular course of action; nor should it be relied on as legal advice or regarded as a substitute for detailed advice in individual cases.
The services of a competent professional adviser should be obtained in each instance so that the applicability of the relevant legislation or other legal
development to the particular facts can be verified.