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GRP Rainer Rechtsanwälte – Taking out D&O insurance

June 2018

Taking out a D&O insurance policy for a company’s executive bodies is a crucial step to reducing the risk of personal liability.

Managing directors, executive and supervisory boards as well as other executive bodies within a company are subject to a significant risk of liability. Mere negligence can result in personal liability on the part of managers. To minimize this risk, a lot of businesses take out D&O insurance for their executive bodies. In our experience here at the commercial law firm GRP Rainer Rechtsanwälte, it is essential that the policy be tailored to the unique risks faced by the respective managers if the insurance coverage is to actually kick in in the event of liability.

Roles and responsibilities are allocated differently in every company. Accordingly, there is considerable variance in the risks faced by executives. This ought to be borne in mind when taking out D&O insurance. That is why we at GRP Rainer Rechtsanwälte believe conducting a detailed risk analysis should be the first priority. The policy should then be tailored to the individual requirements based on this analysis. This differentiated structuring of the policy is the best way of avoiding a legal dispute with the insurer in the event of a claim.

One important aspect here is the extent of the insured sum. The D&O insurance should also cover the risk of both internal and external liability. The company itself may lodge claims against its own executive bodies if the latter breach their duties of care and thus give rise to loss or damage. This risk of internal liability ought to be appropriately covered in the interests of the managers and the company. It is, of course, also possible for external liability claims to arise against the executive bodies. The D&O insurance should also cover managers against these kinds of third-party claims. This issue of claims for recourse needs to be addressed as well. Furthermore, coverage for both retroactive and follow-up liability has to be taken into account.

Even if the major liability risks faced by the executive bodies are covered by the D&O insurance policy, it is still possible in an emergency for disputes to emerge with the insurer if the latter does not wish to stand good in the event of a claim. Lawyers who are experienced in the field of company law can advise businesses when taking out a D&O insurance policy and assert claims against the insurer.

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