What D&O is
Directors and Officers Liability insurance (D&O) protects a company's executives from financial claims arising from their management decisions. The policy covers losses the executive is obliged to compensate and the costs of defence — lawyers, expert reports, court costs.
In Russia this type of insurance is particularly relevant: the law expressly provides for the personal liability of executives.
Why executives bear personal liability
- Article 53.1 of the Civil Code — a person authorised to act on behalf of a legal entity, as well as members of its collegial bodies, must compensate losses caused to the company through their fault if they acted in bad faith or unreasonably.
- The Joint-Stock Companies Law (Article 71) and the LLC Law (Article 44) — board members, the sole executive body and members of the management board are liable to the company for losses caused by their culpable actions or omissions.
- The Insolvency Law (Federal Law No. 127-FZ) — persons controlling the debtor may be held subsidiarily liable for the company's debts, for example for failing to file for bankruptcy in time.
Claims are brought by shareholders and participants, the company itself (including after a change of owner), the bankruptcy trustee, creditors, regulators and employees.
Who the policy protects
- members of the board of directors and supervisory board;
- the general director (CEO) and members of the management board;
- other officers — the CFO, chief accountant, heads of departments, if named in the contract;
- usually automatically — former and future executives during the policy period;
- under extended cover — subsidiaries.
Structure of cover
A classic D&O policy has three parts:
- Side A — direct protection of the executive when the company cannot or may not indemnify them (for example, in bankruptcy).
- Side B — reimbursement of the company if it has indemnified the executive for losses and costs.
- Side C — the company's own liability for securities-related claims. Relevant for public companies.
What is paid
- losses awarded by a court;
- settlement amounts agreed with the insurer;
- legal defence costs, including advance payment of court costs before the case ends;
- defence costs in investigations and inspections — within the limits set by the contract;
- under some policies — reputation restoration costs.
Typical exclusions
- intentional wrongful acts and fraud established by a court decision;
- personal gain to which the executive was not entitled;
- claims known before the start of cover;
- harm to life, health and property — this is covered by general liability insurance;
- professional errors in providing services to clients — this is the subject of professional liability insurance;
- fines and tax penalties, unless the contract provides otherwise.
Key terms
Claims-made basis
A D&O policy generally works on a claims-made basis: it covers claims made during the policy period for acts committed after the retroactive date. That is why it is important to renew the policy without gaps and to agree the retroactive date.
Territory
Usually worldwide, but for companies whose securities trade abroad, terms for claims in certain jurisdictions are agreed separately.
Term and limit
The contract is concluded for a year. The limit is chosen based on the company's size, debt load, public status and industry risks.
Underwriting
The insurer assesses the risk using a proposal form and financial statements. Information is usually requested on the group structure, litigation, transactions and corporate governance.
Who needs D&O
- public companies and bond issuers;
- banks and financial institutions;
- companies with foreign or minority shareholders;
- companies with a high debt load and bankruptcy risks;
- holding groups with many subsidiaries;
- companies that bring in independent directors — for them a policy is often a condition of joining.
Practical tips
- Complete the proposal form fully and accurately: inaccurate information is grounds for refusal.
- Check the definitions of "officer" and "claim" in the rules.
- Agree cover for defence costs in investigations.
- Clarify the terms of the extended reporting period after the contract ends.
Learn more in the Directors' liability (D&O) section. Related products are professional liability and general liability. To get offers from several insurers, submit a request.