D&O insurance - management liability insurance

One of the most complex issues in business today is the ever increasing level of liability and possible recourse against managing directors and supervisory boards of corporations as well as private companies, associations, foundations and others.

The managing director and executive board, as well as the supervisory board, face personal and professional risks in almost every decision they make while performing their duties. These decisions are often examined in detail by shareholders, banks, partners, customers, employees and even competitors. This all happens against the background of complex national and international jurisdiction.

Corporate governance isn’t everything

Good corporate governance can minimise risks, but it cannot eliminate potential liability. It should not be forgotten that while the company's liability may be limited, the managing director's and the boards’ liability is not.

Good management liability insurance increases the managing director's and supervisory body's trust in making business decisions which really drive the business forwards. Without sufficient liability insurance, managers may shy away from important strategic decisions because they fear the risk of personal liability and claims.

Why choose D&O insurance?

Taking on a leadership position in a company comes with a great deal of responsibility. In general, managers and the leadership body are liable for damages to the company resulting from culpable breaches of duty with their personal assets. This presents an enormous financial risk to the manager, since the extent of the liability is unlimited. A single mistake in the manager's business activity can become a major threat to their financial security. D&O management liability insurance protects against this.

Manager's joint and several liability

A further reason for reinsurance through a D&O liability policy: The manager is not only liable for their own mistakes, but also has joint and several liability for the errors of all members of leadership bodies to which the manager belongs. As manager, you also run the risk of being made accountable to a high degree for the mistakes of others. 
A manager's responsibilities don't end at the office doors; they must also answer for the financial impact of wrong decisions which affect third parties.

Which issues does the D&O management liability insurance cover?

The manager is subject to a duty of care towards the company. This means they must avoid excessive risk and must consider important business decisions very carefully. One might think that this way of working is self-explanatory for a manager. However, when you become aware of the complexity involved in some business decisions, these obligations are seen from another perspective. The following examples should demonstrate how quickly the responsible person can be prosecuted for breaching the duty of care.

"Staff" example: The manager employs a new team member in accounting. This person embezzles a six-figure sum. It comes to light that the employee has previously been convicted of embezzlement - the manager should have checked the employee's application documents more carefully, according to the company. D&O management liability insurance covers the costs.

"IT" example: The company's computers are outdated; a new system is needed. The responsible manager, not themselves an IT expert, receives bad advice and purchases overpriced and unnecessary software and hardware. The company demands that they repay the unnecessary expenses. D&O management liability insurance will cover these costs too.

More flexible decision-making thanks to D&O management liability insurance

D&O management liability insurance serves to increase the decision-making ability of the leadership body. If the manager assumes that they face a significant personal risk in every major business decision, it could lead to a reluctance to make decisions, which could then have negative consequences for the business. Thanks to D&O and management liability insurance, decision-makers can act free from the risk of failure on important decisions which they may personally be financially liable for.