Directors and Officers Insurance: Comprehensive protection for decision-makers to minimise risk
27 May 2025
Katrin Straub
Managing Director at nextsure
Mismanagement decisions can have financially disastrous consequences, often entailing personal liability extending to private assets. A Directors and Officers Insurance (D&O Insurance) provides an indispensable shield in these situations. Discover how this specialized policy works and why it is essential for executives.
The topic in brief and concise terms
A D&O insurance policy protects the personal assets of executives against claims for damages resulting from breaches of duty and covers both internal and external liability.
The coverage amount should be carefully chosen, often based on equity or total assets (e.g., ten percent of the total assets), and important clauses such as retroactive coverage and long reporting periods (often three to ten years) are crucial.
New laws such as the NIS-2 Directive and the Supply Chain Act tighten personal liability for managers and increase the need for D&O insurance, as they often represent the only option for risk limitation.
Understanding the Basics of Directors and Officers Insurance
The Directors and Officers insurance, often referred to as D&O policy, is a liability insurance for financial losses specifically designed for board members and senior executives. It comes into play when these individuals are personally held liable for financial losses due to a breach of duty in the course of their activities. The cost of such coverage starts at a few hundred euros annually but can vary significantly depending on the size and risk of the company. Many managers underestimate that even slight negligence can make them liable with their entire personal assets. (§ 93 AktG, § 43 GmbHG). Therefore, this insurance is an important component of risk management for any company and protects the financial well-being of decision-makers. The D&O insurance covers both internal liability (claims from the company itself) and external liability (claims from third parties). This provides the foundation for responsible business conduct without the constant fear of personal financial ruin.
Identifying the Need: Who Benefits from D&O Insurance?
Essentially, a Directors and Officers insurance policy is relevant for a wide range of decision-makers. These include board members, managing directors, supervisory board members, and senior executives with power of attorney or general authority. Managers of start-ups and individuals in special roles such as data protection officers or compliance officers should also consider such protection. Even in associations and foundations, the responsible bodies can benefit from a D&O insurance. Personal liability is not limited to large corporations; management errors can lead to significant claims in small and medium-sized enterprises (SMEs) as well. A study shows that the majority of D&O claims actually affect SMEs. The necessity arises from the potentially unlimited personal liability with private assets for breaches of duty. A professional liability insurance can be complementary here, but it does not cover direct financial losses. Therefore, protection through a D&O policy is a must for many executives.
Optimising coverage: What does a good D&O insurance cover?
A robust Directors and Officers insurance policy provides comprehensive protection against financial losses. Key benefits include covering claims for compensation up to the agreed coverage amount. Another important aspect is passive legal protection: the insurance covers the costs of lawyers, courts, and experts to defend against unjustified claims. Pay attention to important clauses like retroactive coverage, which also covers breaches of duty that occurred before the policy commencement, provided they were unknown at the time of agreement. Equally crucial is a sufficiently long reporting period, often between three and ten years, as claims are frequently made only after the policy has ended. Some policies even offer an unlimited reporting period after a certain contract duration. The following points are typical components of benefits:
Coverage of defence costs (lawyers, courts, experts).
Release from legitimate compensation claims.
Protection against internal and external liabilities.
Co-insurance of subsidiaries, often worldwide (with restrictions for the USA/Canada).
Costs for PR consultancy to restore reputation.
Support in criminal and regulatory proceedings.
Optional components like a deductible insurance for board members.
A careful examination of the insurance terms is essential to avoid coverage gaps. A commercial legal protection insurance can supplement protection but does not replace the specific benefits of D&O.
Analysing case studies: Typical scenarios for D&O claims
The range of potential breaches of duty is vast and can affect any area of management. A common example is the incorrect selection of business partners or service providers without sufficient due diligence, leading to financial losses for the company. Missing deadlines, for example, when applying for funding, can also trigger a D&O claim if the company loses out on financial grants as a result. A director who sells goods on credit without checking the customer's creditworthiness exposes the company to significant default risk – a classic case of internal liability. Even inadequate market analysis before launching a new product can lead to claims for damages in the event of failure. Externally, the delayed submission of annual financial statements can result in fines for which the responsible manager can be held liable. Or a director continues to order goods even though insolvency is looming, which can lead suppliers to make claims against him personally. These examples illustrate how quickly a financial loss can occur, which, without a Directors and Officers insurance policy, could threaten the personal assets of the executive.
Mastering legal frameworks and current developments
The legal requirements for executives are constantly evolving. The German Stock Corporation Act and Limited Liability Companies Act form the basis for the liability of board members and managing directors (§ 93 AktG, § 43 GmbHG). The Federal Court of Justice, in landmark rulings such as the ARAG/Garmenbeck decision, has tightened the duties of supervisory boards to assert claims against board members. New legislation like the NIS-2 Directive on cybersecurity or the Supply Chain Due Diligence Act (LkSG) introduces additional personal liability risks for management bodies. The NIS-2 Directive explicitly provides that management bodies can be held responsible for violations of cybersecurity measures and largely prohibits liability waivers by the company. This highlights the growing importance of D&O insurance as the only remaining protective mechanism. The LkSG can also lead to fines and civil lawsuits in the event of breaches of due diligence obligations in the supply chain, potentially affecting D&O insurance. A Commercial Cyber Insurance is an important addition but does not cover the personal liability of managers. Executives must be aware of this complex and changing legal landscape.
Expert tips for your Directors and Officers insurance
When selecting and structuring your Directors and Officers insurance, there are several important points to consider. Our expert tip: Pay attention to the insurer's so-called waiver of cancellation in the event of a claim. Many insurers reserve the right to special termination after a claim; an appropriate clause can exclude this. Also, carefully check the scope of the policy, especially if operating internationally. The co-insurance of mandates in subsidiaries or external committees (ODL mandates) should be clarified. For public companies, the legally required deductible for board members (§ 93 para. 2 sentence 3 AktG) is relevant; there are special deductible insurances for this purpose. Document your decisions carefully, as in the case of internal liability, the burden of proof is often reversed. A professional indemnity insurance for experts is a different product, but the principle of careful documentation also applies there. Always seek expert advice if in doubt, to find the optimal coverage for your situation. Our advisors at nextsure are happy to assist you with this.
Your next step towards optimal protection
The Directors and Officers insurance is a complex yet indispensable tool for protecting the personal assets of executives. Given the multitude of liability risks and strict legal requirements, it offers security and enables entrepreneurial action with calculated risk. A careful analysis of individual needs and a precise comparison of the offered rates and conditions are essential. The right coverage amount and important clauses, such as retroactive cover and reporting deadlines, play a crucial role in providing effective protection. Investing in D&O insurance is an investment in the financial security and operational capacity of management. At nextsure, we understand the challenges you face as a decision-maker. That's why we offer individual and expert advice to find the right D&O solution for you. Take advantage of our expertise for your security. Request an individual risk analysis now: Have your insurance situation checked for free and receive specific optimisation suggestions.
More useful links
Wikipedia provides a comprehensive overview of Directors and Officers (D&O) insurance, the liability insurance for board members and senior executives.
The German Corporate Governance Code (DCGK) provides information on essential legal regulations and internationally recognised standards of good corporate governance.
EY Law highlights in an article current developments and reliefs for managing directors and creditors in the context of corporate liability.
KPMG Law offers insights into legal issues and solutions specifically for the insurance sector.
The Federal Statistical Office (Destatis) provides official data and statistics on business registrations and insolvencies in Germany.
The Frankfurter Allgemeine Zeitung (FAZ) highlights in an article the importance of compliance and why it cannot be replaced solely by insurance.
The German Insurance Association (GDV) provides information and positions of the German insurance industry, including on liability issues.
FAQ
Für wen ist eine D&O-Versicherung sinnvoll?
Eine D&O-Versicherung ist sinnvoll für Vorstände, Geschäftsführer, Aufsichtsräte, Prokuristen und leitende Angestellte von Unternehmen jeder Größe, inklusive Start-ups. Auch für Organe von Vereinen und Stiftungen kann sie relevant sein.
Wie hoch sollte die Deckungssumme einer D&O-Versicherung sein?
Die Deckungssumme sollte dem individuellen Risiko angemessen sein. Empfehlungen reichen von mindestens der Hälfte des Eigenkapitals bis zu zehn Prozent der Bilanzsumme. Üblich sind Summen zwischen einer und zehn Millionen Euro.
Was bedeutet 'Claims-Made-Prinzip' bei der D&O-Versicherung?
Das Claims-Made-Prinzip bedeutet, dass der Versicherungsfall dann eintritt, wenn der Anspruch auf Schadenersatz während der Vertragslaufzeit (oder einer vereinbarten Nachmeldefrist) erstmals gegen die versicherte Person erhoben wird, unabhängig davon, wann die Pflichtverletzung begangen wurde.
Was ist unter Innenhaftung und Außenhaftung zu verstehen?
Innenhaftung bezieht sich auf Schadenersatzansprüche, die das eigene Unternehmen gegen seine Führungskräfte geltend macht. Außenhaftung betrifft Ansprüche von Dritten (z.B. Kunden, Lieferanten, Gläubiger, Behörden) gegen die Führungskräfte.
Deckt die D&O-Versicherung auch vorsätzliches Handeln ab?
Nein, vorsätzliche Pflichtverletzungen und wissentliches Fehlverhalten sind in der Regel vom Versicherungsschutz der D&O-Versicherung ausgeschlossen. Grobe Fahrlässigkeit ist hingegen oft mitversichert.
Kann ich eine D&O-Versicherung auch persönlich abschließen?
Ja, neben der Unternehmens-D&O, die die Firma für ihre Führungsebene abschließt, gibt es auch die persönliche D&O-Versicherung. Diese kann eine einzelne Führungskraft für sich selbst abschließen, z.B. wenn das Unternehmen keinen Schutz anbietet oder der bestehende Schutz als unzureichend empfunden wird.
