D&O insurance: Managers under pressure – liability without limits!

D&O insurance: Managers under pressure – liability without limits!

Boards of directors and supervisory boards in Austria are exposed to a growing risk: in the event of breaches of their duty of care, they are liable unlimitedly and jointly, which in the worst case scenario can endanger their personal financial existence. This has far-reaching consequences for management in companies, such as The press reported. Wrong decisions can result in injured third parties being able to choose against whom they assert liability claims - a frightening prospect for many leaders.

The responsibility of the supervisory board extends to the entire activity of the company, not just to their immediate area of ​​responsibility. In this context, D&O insurance (Directors and Officers Liability) is playing an increasingly important role. These insurance policies, which are established in Austria and have their origins in the Anglo-American region, serve as insurance for executive boards and supervisory boards. They cover third-party claims as well as legal fees for defending the executives, which is essential in the current legal landscape.

Legal consequences and examples

The increasing importance of corporate responsibility leads to increased claims for compensation from injured parties. An impressive example is the former Volkswagen board member Martin Winterkorn, who was sentenced to pay 11.2 million euros in damages because of his role in the diesel scandal. In total, D&O insurance companies paid out up to 270 million euros in this scandal. Such developments highlight the serious risks that responsible managers face.

Another example from Germany illustrates the problem: The Hamm Higher Regional Court sentenced six former members of the supervisory board of the insolvent Karstadt parent company Arcandor to pay around 53.6 million euros in damages. The insolvency administrator became active because these supervisory board members had not fulfilled their obligation to monitor the board of directors. The total amount of damages including legal interest amounts to around 81.5 million euros, which clearly indicates the risks associated with taking on supervisory board functions.

D&O insurance as a protective measure

Boards should proactively address liability risks and consider separate D&O insurance coverage to improve their legal position. Separate policies for management and supervisory boards offer better protection. In particular, the so-called “Two Tier Trigger Policy” should be mentioned, which contains special conditions under which the D&O policy applies to the supervisory board.

In addition, D&O insurance also adds provisional legal protection and active costs. Supervisory boards must also ensure that they investigate misconduct by management in order to avoid their own liability. Personal D&O insurance is also often recommended because it can provide individual protection and typically does not include exclusions that are often found in corporate D&O policies. It is advisable to consult an independent insurance broker to ensure optimal insurance coverage.

In summary, management boards and supervisory boards in Austria are faced with a complex legal situation that entails both challenges and extensive liability risks, which can be at least partially mitigated through appropriate D&O insurance. Developments in case law show that responsible managers are well advised to actively address their insurance coverage.