D&O Protect Insurance

In the reality in which companies operate, cyber risk has become one of the key issues that authorities in every major organisation must manage. In the face of this unavoidable risk, companies need to continuously develop their cyber resilience capabilities, i.e. the ability to anticipate, prepare for and learn from cyberattacks, so that their operations remain secure and uninterrupted. In view of the above, the company’s authorities, including, most importantly, the members of the board of directors, must continuously support a comprehensive cyber security programme, which should be constantly monitored and reviewed in terms of the organisation’s resilience based on the ever-changing cyber threat environment. 

Continuous security checks on the proper handling of information, improving procedures and investing in new technologies, and therefore management based on constant and robust risk control of cyber threats, can go a long way towards reducing the frequency of attacks or increasing resilience to such attacks. However, it is not possible to completely eliminate such risks, and their consequences can be very severe. Loss of sensitive data, lockdown of systems, ransom demands, downtime and disruption of operations can result in huge financial losses for an organisation, and where there is a loss, blame is sought. 

D&O Protect insurance provides protection for key management personnel in the event of allegations of failures to properly manage and oversee an organisation’s cyber security policy, such as a lack of adequate procedures, controls, oversight, investment in equipment and systems, or at least the provision of staff training.

Climate change and the associated regulatory requirements for corporations may also become increasingly important in the context of D&O insurance. In western Europe and especially in the USA, there is already a marked increase in the risk of company directors and officers being held liable for failures to meet their regulatory obligations in this area. 

The inadequate reporting of environmental incidents or the lack of adequate measures to mitigate the risk of environmental damage therefore represents an additional risk exposure for managers. When talking about environmental risks, however, we should not only focus on environmental risk issues. ESG obligations and risks of greenwashing, referring to the potentially negative effects on an organisation’s financial performance and sustainability resulting from environmental, social and corporate governance factors, are being discussed from every angle.

D&O Protect insurance is an excellent response to these risks, providing key management personnel within an organisation with not only the necessary means to defend themselves against claims or in proceedings, but also ensuring that compensation is paid in the event of an administrative penalty imposed on such a person or the company’s raised recourse claims after payment of such penalties or damages.

Almost every company employs staff – the larger the organisation, the more employees. With each additional individual employed by the company, the potential risk of an employment relationship dispute increases. In the Polish context, most of the legal bases for employee claims are found in the Labour Code, however, a whole range of disputes between the employer and the employee are resolved based on the provisions of the Civil Code. 

The provisions of these codes contain a number of prerequisites, which are the basis for pursuing employee rights through the courts. Whether the employee claim is an appeal claim, a claim for determination or a financial claim, each involves legal and financial risks for the organisation. Violations of employee rights comprise an extensive catalogue of wrongful acts, ranging from wrongful termination of employment contract, wrongful reduction of notice period, discrimination, mobbing, invasion of privacy, social harassment and many other torts on the part of the employer. 

The development of Community legislation with a clear trend towards the protection of workers’ rights generates the need to comply with more and more employment rights legislation. Recent times have seen a lot of discussion on whistleblower protection, a new legal definition of harassment, ensuring that employees have access to pay information, or prohibiting breaches of equal pay within an organisation. Violations of employee rights undoubtedly pose a serious reputational, legal and financial risk to the business. 

D&O Protect insurance, which provides protection for managers against claims arising from this and the ability to provide employment practice liability protection for the company itself, is an excellent response to these risks.

Failure to implement proper health and safety procedures led to a serious accident at work. During the demolition of an unused storage hall, a ceiling fell on the workers, leading to their death. The post-accident report showed numerous health and safety failings. Criminal proceedings under Article 220 of the Criminal Code were initiated against the CEO of the limited liability company.

D&O Protect insurance provides reimbursement for the costs of defence in criminal proceedings and the costs of psychological support for the insured.

A board member decided to sell the company’s assets without the approval of the general meeting, which was considered to be an act he was not authorised to do. An audit showed that the property had been sold at an undervalued price, so that the company suffered financial damage of great magnitude. The general shareholders’ meeting passed a resolution refusing to discharge the board member. The company filed a lawsuit against the member of the management board for the financial loss under Article 483 of the Commercial Companies Code. At the same time, the company filed a notice to the public prosecutor’s office on suspicion of an offence of abuse of trust under Article 296 of the Criminal Code.

D&O Protect insurance provides, first of all, reimbursement of the costs of drafting a lawsuit for the annulment or declaration of invalidity of the resolution of the general meeting not discharge the management board member, as well as the costs of representation of that member in proceedings initiated by such a lawsuit. In addition, the insurance provides reimbursement of the costs of investigation proceedings, the costs of defending against the company’s civil claim and the costs of restoring the insured’s reputation.

In view of the failure to redeem the bonds and satisfy all matured liabilities and the impossibility of enforcing the receivables from the company’s assets, bondholders and counterparties of the bankrupt company filed claims against three members of the management board of the limited liability company for joint and several payment of all unsatisfied liabilities under Article 299 of the Commercial Companies Code. In addition, the public prosecutor’s office initiated criminal proceedings against the members of the management board on the basis of a notice of suspicion of an offence involving the siphoning of funds from the company and their misappropriation, prosecuted under Article 284 of the Criminal Code.

D&O Protect insurance provides compensation for defence costs both in criminal proceedings and in proceedings seeking to adjudicate the liability of directors and officers for the company’s liabilities including the amount of the liability.

The members of the board of directors of a public company breached their disclosure obligations incumbent on issuers, as a result of which they failed to provide confidential information within the statutory deadline containing data on the drastic deterioration of the company’s financial situation. The administrative investigation revealed that the board of directors already had knowledge of the company’s significant decrease in revenue and the loss incurred 1.5 months before the publication of the quarterly financial statements.

As a result of the concealment of the above information, shareholders and future investors were unaware of the investment risks that materialised after the publication of the report. In addition, supervisory proceedings revealed that one of the members of the management board sold the company’s shares held during the closed period. Administrative penalties of several hundred thousand PLN were imposed on the members of the management board for violating the Market Abuse Regulation.

D&O Protect insurance provides reimbursement or coverage for costs in administrative proceedings and administrative penalties imposed on directors and officers.

The company failed to fulfil its obligations related to timely payment of due advance payments of personal income taxes, which resulted in the initiation of control proceedings in the company under Article 281 of the Tax Ordinance and the initiation of criminal fiscal proceedings under Article 77 § 1 of the Code of Criminal Procedure against the president of the management board. The president of the company’s management board benefited from the protection of D&O Protect insurance, receiving full reimbursement of the costs of defence in the fiscal penal proceedings and the costs of appearing before the authorities.

The costs of the company’s legal and tax services in connection with the tax audit and the CEO’s financial loss resulting from the payment of a criminal tax fine were reimbursed by Tax Protect insurance. However, it should be made clear here that the property financial loss resulting from the payment of a penal fiscal fine can only be reimbursed from Tax Protect insurance.