D&O (Directors and Officers Liability)FAQs

It's the insurance that protects the personal assets of directors, board members and officers against the financial consequences of a harmful act: any action or omission, actual or alleged, committed in carrying out their role, including anything claimed against them simply for holding that position. Running a company means making decisions, and making decisions carries a liability that can reach the personal assets of the person deciding, not just the company's. D&O manages that exposure.

It's defined by the control and decision-making functions actually exercised, not by the job title or by holding shares in the company. It protects the person who has the power to manage the company against claims from third parties. It usually includes members of the board of directors — directors, whether acting jointly or severally — the general manager, the finance director, the board secretary (even without voting rights) and middle managers holding notarised powers of attorney. It's worth specifying the roles and the specific individuals in the policy.

What changes is the reason you need D&O, not whether you need it: a director's legal liability is the same in an S.L. as in an SAU or in a company with several partners. What changes is who can make an internal claim, not the exposure to third parties such as the tax authorities, social security or creditors.

It's a widespread and mistaken idea that the "limited liability" of an S.L. reduces the director's personal risk. "Limited" refers only to a partner's liability for the company's debts, never to a director's liability for their management — and that's the same in an S.L. as in an S.A.: articles 236 to 241 of the Spanish Companies Act set out the same liability regime for directors and board members in both cases.

In a single-member S.L. or an SAU, only the sole partner or shareholder — or their heirs — could bring an internal claim, but D&O still covers exposure to third parties just as in any other corporate structure. In a family business with several partners, family partners and their heirs are added to the mix, a common source of conflict; in a company with dispersed shareholding, several shareholders can bring claims. In both cases, the actual exposure to third parties doesn't change, and it tends to be higher in smaller, family-run structures, which usually have fewer internal controls and less documentary formality.

Beyond the corporate profile, four legal scenarios most often trigger a claim against a director's personal assets: failing to dissolve the company in time when a legal ground for dissolution arises (article 367 of the Spanish Companies Act); liability in insolvency proceedings if the filing is delayed beyond the legal deadline; debts to social security and the tax authorities if the company stops trading without formally winding up its obligations (it's worth checking whether the policy covers only defence costs or also fines and surcharges); and piercing the corporate veil, which usually requires intent or deliberate abuse and so tends to be excluded from almost all policies.

In short: having few partners doesn't reduce a director's exposure, only the number of people within the company who could bring a claim against them. D&O responds to management error, not to deliberate wrongdoing intended to defraud, and that distinction is the same in a single-member S.L. as in a company with dispersed shareholding.

Yes, and it's especially relevant in family businesses. The common perception is that conflicts in a family business are resolved within the family, without reaching formal claims. The reality is different: succession conflicts, disputes between branches of the family, and claims from minority partners are a frequent source of litigation between directors.

In addition, directors of family businesses have exactly the same legal exposure as those of any other company: they can be held liable for corporate debts, receive claims from employees or creditors, and be investigated by regulators.

A company's size doesn't reduce a director's exposure. A director of a family SME is personally liable in exactly the same way as a board member of a large corporation.

In a merger or company sale, the D&O policy needs to be reviewed and adapted as part of the deal's own closing process, not afterwards: it's one of the moments of highest risk and lowest insurance attention.

When a company changes hands, the D&O policy in force may not be adapted to the new governance structure: new roles, dual functions, executives acting in both companies at once. Outgoing directors retain exposure for their acts during their time in office, even once they're no longer in the role; incoming directors take on liability for a company they only partly know, with the risk that past contingencies surface after closing.

This review should be part of the legal due diligence for any corporate transaction. D&O isn't a closing formality: it's a structural piece that should be reviewed every time the governance structure or executive roles change.

Yes, with important nuances. D&O can cover defence costs in criminal proceedings and, in some cases, bail bonds. What it doesn't cover is the criminal conviction itself: criminal fines are personal and non-transferable, and can't be insured.

D&O's criminal cover applies at the defence stage, which is where the highest costs are concentrated and where good legal representation can make the difference between a conviction and an acquittal.

D&O doesn't shield you from a criminal conviction if you've broken the law. But it guarantees the defence needed so that decision is made by a court, not determined by a lack of financial resources to defend yourself.

Yes, and it's a very specific, little-known risk. Directors who weren't present for a decision aren't automatically exonerated from liability for that reason. If their formal opposition to the decision isn't on record, they can be drawn into a later claim.

During periods of minimal cover or absences — holidays, sick leave, travel — with incomplete boards and urgent decisions, the risk multiplies: whoever is available decides, and whoever decides — and whoever wasn't there and didn't formally object — takes on liability. Verbal or informal delegations protect no one.

Before an absence: formalise in writing any delegation of duties or signing authority. If you're a board member and can't attend a meeting where a significant decision will be made, put your position on formal record before the meeting, not after.

It's precisely at that point that D&O proves most valuable, and when having taken it out beforehand is most appreciated. In insolvency proceedings, directors can be held jointly liable for corporate debts if they're deemed to have acted negligently or with intent. The claim goes directly against their personal assets.

The D&O policy operates independently of the company's financial situation: even if the company is insolvent and has no resources, the insurance remains in force and covers the defence and any eventual liability of the officers.

Insolvency proceedings don't cancel D&O. Precisely because the company can't financially support its directors at that point, the insurance shows its full value.

The right limit depends on several factors: the size of the company, its sector, the number of officers insured, whether there are institutional investors, and the level of litigation risk in the environment it operates in.

As a general reference, in companies with investors who have required D&O as a condition of investment, the limit should be aligned with what those investors set out in the term sheet. In companies without external investors, a reasonable limit is usually calculated based on revenue and the personal assets of the officers you want to protect.

A limit that's too low can be worse than having no insurance at all: it gives a false sense of security and then falls short when the claim arrives. At InsurCEO we analyse each company's specific profile to recommend the right limit.

An officer's liability for past decisions doesn't disappear when they leave the role, and claims can arrive years later. That's why the D&O policy provides for two mechanisms: cover for retired or outgoing directors, and an additional reporting period (run-off), usually between 2 and 5 years after they leave.

Cover for retired or outgoing directors keeps the former officer protected against future claims, provided the error originated while they were active in the role. Run-off is an extra window of time granted by the policy after the officer leaves, allowing claims received today but relating to past decisions to be reported. This ensures the outgoing professional isn't left unprotected if the company decides to cancel or change its D&O insurance.

Yes, through an extension known in the industry as EPLI (Employment Practices Liability), which covers an officer's liability against claims brought by the company's own employees. It includes direct claims against a director for unfair or wrongful dismissal, workplace harassment, sexual harassment, discrimination — based on gender, age or race — or breach of the right to privacy. The costs covered are legal defence and compensation for moral or other damages when an employee sues an officer individually.