What type of protection does senior management insurance offer?

Large companies are paying increasing attention to the way D&O (Director and officer) policies are written, according to Marsh's global market report. D&O are insurance policies that companies take out to cover those actions that their senior officials carry out, derived from their position and on behalf of the company, that is, those damages that they may cause to third parties due to the management of the business.

Black cards, Bankia... activate this type of policy and open a debate about who should pay according to what type of situations and what D&O insurance includes or excludes, since many times the wording of the policies leads to confusing or ambiguous understandings.

There are two types of clauses, which can be classified as: coverage exclusions and, on the other hand, limits on the rights of the insured. They are distinguished only from a theoretical point of view, since the first option establishes the risks that, if they occur, allow the policyholder to obtain the benefit from the insurer and, in the second case, they are clauses that restrict, modify or condition the insured's right to obtain compensation.

3 types of coverage

There are three types of coverage:

  • The payment of compensation; D&O policies cover those compensations that arise from civil liability, which a senior official must face, because there is a court ruling.
  • Legal defense; They are senior management insurance policies that are responsible for covering the executive's defense costs that may arise in a claim against him or her.
  • Civil or criminal bail; This type of insurance includes policies that cover the expenses derived from the payment of a bond, imposed on a manager in a civil or criminal procedure due to his or her liability.

And what are the most common exclusions?

  • Fraud or bad faith of the insured (when the insured knowingly acts in bad faith)
  • Gifts, payment of commissions or bribes
  • Illnesses caused by the executive (if the manager causes personal injury to someone in his or her environment)
  • Family war or between counselors
  • Country without protection (In the event that a Spanish executive with a D&O policy travels to the US or Canada, he or she will not obtain the same policy conditions as in Spain, because there are legislative differences.

To know exactly what D&O policies consist of and understand all the advantages and disadvantages, it is necessary to consult with a specialist to understand what type of coverage it has and how it can benefit you.

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