Financial Lines one stop shop


The­re are inse­pa­ra­ble rela­ti­ons­hips bet­ween the various Finan­cial Lines. We take care of the important recon­ci­lia­ti­on pro­ces­ses for you. This is dif­fi­cult. Hard­ly any insu­rer offers all the pro­ducts. Not every offer cor­re­sponds at least to the mar­ket stan­dard. The pro­ducts are not coor­di­na­ted, alt­hough they have many inter­faces. The­re are always other insuran­ces that seem to be clo­ser to the loss if a claim is repor­ted. The gene­ral insuran­ce con­di­ti­ons are revi­sed on average every two years and the­re are also chan­ges for the worse. The terms and the pro­duct struc­tu­re are incon­sis­tent. The sale of new cover com­pon­ents is always based on cur­rent loss expe­ri­ence in prac­ti­ce. This is some­ti­mes, unfor­tu­n­a­te­ly, only a claim that can be expen­si­ve for the insu­red. We make this simp­le to save you from irri­ta­ti­on. Our spe­cial pro­ducts for our cus­to­mers ser­ve some insu­rers as a tem­pla­te for their next pro­duct revi­si­on.

 

Finan­cial Lines: widespread respon­si­bi­li­ties

Respon­si­bi­li­ty for Finan­cial Lines & Claims
Credit­insu­rer Com­mer­cial Crime /Fidelity
Legal expen­se cost insu­rer Cri­mi­nal Defen­se Cost Cover­Ma­na­ger Legal Cost Cover
Lia­bi­li­ty Insu­rer Ger­ma­ny Direc­tors & Offi­cers
Lia­bi­li­ty Insu­rer USA/UK Employ­ment Prac­ti­ces Lia­bi­li­ty­Pen­si­on Trust Lia­bi­li­ty
Pro­per­ty-/Elec­tro­nic Insu­rer Cyber-/Busi­ness Inter­rup­ti­on
P&C Insu­rer USA/UK Kid­nap­ping, Ran­som & Extor­ti­on con­nec­ted to Secu­ri­ty Ser­vices
Spe­cial­ty Insu­rer USA/UK Finan­cial Lines packa­ge poli­ci­es

 

The words „pro­duct” and “claims“ are for the sepa­ra­te depart­ments. In finan­cial lines, coor­di­na­ti­on and com­mu­ni­ca­ti­on cos­ts are extre­me­ly high. The fact that this is a mat­ter for the board­room is an addi­tio­nal pro­blem. We have a lot of expe­ri­ence and you can only pro­fit from it.

When we act as bro­kers in the Finan­cial Lines for you, we pro­mi­se you to crea­te order in this dyna­mic cha­os. When we deal with your D&O, we spend half of our time with the Finan­cial Lines inter­faces, gaps and misun­derstan­dings:

Gaps in the pre­sen­ta­ti­on of your over­all risk

  • Gaps in the repre­sen­ta­ti­on of insura­bi­li­ty
  • Pla­ce­bo co-insuran­ce in exis­ting poli­ci­es (eg inclu­si­on of the pen­si­on trus­tee coverage in the D&O poli­cy)
  • Mis­sing poli­ci­es
  • Dou­ble insuran­ces
  • Denied claims regu­la­ti­on based on the prio­ri­ty of other finan­cial lines
  • Lack of syn­chro­niz­a­ti­on bet­ween the poli­ci­es (dif­fe­rent sub­si­dia­ry defi­ni­ti­ons, dif­fe­ring claims made rules)
  • Sec­tor deli­mi­ta­ti­ons in the exis­ting poli­ci­es are not reco­gni­zed, not adap­ted and often not repor­ted.

The­re are com­mu­ni­ca­ti­on needs at all levels ran­ging from the tem­pla­tes for the manage­ment and exe­cu­ti­ve board to the dis­cus­sion about the allo­ca­ti­on of the invoice docu­ments with the insu­rers’ claims admi­nis­tra­tors.

Why is this mar­ket so com­plex? Why is the­re no well-matched Finan­cial Lines insuran­ce mar­ket in Ger­ma­ny? This would lead to impro­ve­ments in all aspects among others: to bet­ter pro­duct stan­dards, fas­ter ser­vice, more com­pre­hen­si­ve know­ledge for advice and in case of los­ses, cost reduc­tion and more over­all satis­fac­tion. The ans­wer is simp­le: D&O insuran­ce has only recent­ly been the focus of the Finan­cial Lines. D&O is a young class of insuran­ce busi­ness and only litt­le chan­ge can be expec­ted in the near future. The estab­lish­ment of an insuran­ce com­pa­ny lasts for deca­des. With litt­le claims expe­ri­ence in the begin­ning, the requi­re­ment for coor­di­na­ti­on is not reco­gni­zed until many years later. This need for coor­di­na­ti­on and gap clo­sure is only the begin­ning of a tedious and pro­tra­c­ted pro­cess. The chan­ge manage­ment against the acqui­red rights in the insuran­ce depart­ments is, as expe­ri­ence shows, slow. This work has to be done in Ger­ma­ny. Howe­ver, the speed of inno­va­ti­on among the Finan­cial Lines is high and gro­wing. The­se inno­va­tions come main­ly from the USA. The Finan­cial Lines are an aspect of the dyna­mics of the Ame­ri­can finan­cial mar­ket. In par­ti­cu­lar, the Direc­tors & Offi­cers insuran­ce is to be seen in the con­text of share­hol­der value, com­pli­an­ce and cor­po­ra­te gover­nan­ce. Slim­mer balan­ce she­ets with a hig­her vul­nera­bi­li­ty to finan­cial los­ses and simul­ta­ne­ous­ly incre­a­sing requi­re­ments on finan­cial repor­ting, are the dri­ving for­ces for the Finan­cial Lines.

When and whe­re the indi­vi­du­al insu­rers and bro­kers in Ger­ma­ny estab­lis­hed their Finan­cial Lines units dif­fers. It did not necessa­ri­ly have to hap­pen whe­re the know­ledge for the risk was the hig­hest. Once a com­pe­tence is estab­lis­hed, it is also defen­ded. The com­mer­cial crime insuran­ce is an anne­xed pro­duct of the credit insuran­ce sec­tor. Top-mana­ger legal pro­tec­tion pro­ducts are loca­ted in the legal pro­tec­tion insuran­ce. D&O insuran­ce began in the indus­tri­al lia­bi­li­ty insuran­ce or pro­fes­sio­nal lia­bi­li­ty insuran­ce depart­ments. For EPL and AGG poli­ci­es, the demand for pure­ly Ger­man risks is gro­wing only at a slow rate. Addi­tio­nal­ly, the­re is only a gra­du­al inte­rest for the fidu­cia­ry or pen­si­on trust lia­bi­li­ty in Ger­ma­ny. It was only in 2000 that the pro­vi­si­ons for pen­si­ons were out­sour­ced from the con­so­li­da­ted balan­ce she­ets into pen­si­on fund assets. Organ lia­bi­li­ty risks and risks from day-to-day busi­ness will incre­a­se as the num­ber of reti­rees grows and inte­rest rates shrink. The dete­rio­ra­ti­on of this risk is known from the life insuran­ce sec­tor. Good Ger­man pro­ducts with glo­bal reco­gni­ti­on are still rare in the are­as of employ­ment prac­ti­ces lia­bi­li­ty and pen­si­on trust lia­bi­li­ty. In Ger­ma­ny, the insuran­ce of risk-of-ran­som risks is only pos­si­ble to a very limi­ted extent. D&O insuran­ce still app­lies to reser­va­tions in Ger­ma­ny. This was last obser­ved in 2009 with the intro­duc­tion of the pro­hi­bi­ti­on of non-deduc­ti­ble co-insuran­ce of board mem­bers in the cor­po­ra­te poli­ci­es of stock cor­po­ra­ti­ons.

Risk manage­ment is no lon­ger pos­si­ble without the inte­gra­ted inclu­si­on of the Finan­cial Lines. It is no lon­ger enough to just talk about the D&O insuran­ce. An insuran­ce case at D&O always rai­ses the ques­ti­on as to whe­ther other Finan­cial Lines pro­ducts could be affec­ted, or whe­ther a rejec­tion of D&O insuran­ce is to be expec­ted becau­se other pro­ducts are mis­sing. Howe­ver, then it is too late. We will be hap­py to exp­lain the inter­ac­tion of the various pro­ducts by means of the cur­rent cases in the dai­ly press. The years of accu­sa­ti­ons of the media show why D&O insuran­ce alo­ne is not enough any­mo­re.

Supervisory Board D&O Policy

We will glad­ly con­vin­ce you that this cover is not recom­men­ded. A restraint at the end is alrea­dy necessa­ry, becau­se this poli­cy has only been dis­cus­sed for a short time and it is not popu­lar among the well-net­wor­ked cor­po­ra­te cus­to­mers. Aca­de­mi­cal­ly, it is cer­tain­ly exci­ting to dis­cuss the two-tie­red sys­tem of the super­vi­so­ry board and the exe­cu­ti­ve board, and it seems very cun­ning to reco­gni­ze the dif­fe­rence to the one tier board sys­tem in the US. The­re may have been a case whe­re a super­vi­so­ry board did not have an insuran­ce sum any­mo­re after the board had alrea­dy used up the ent­i­re D&O insuran­ce sum. But a swal­low does not make a sum­mer. Recom­men­da­ti­ons on the use of the cei­ling, given that the­re was just one case whe­re the rele­vant gap was obser­ved, are the ever­y­day noi­se in the mar­ket of the sup­pliers.

We restrict our­sel­ves to a few key­words and indi­ca­ti­ons that speak against this pro­duct:

Insuf­fi­ci­ent insuran­ce sums can­not be pre­ven­ted by clo­sing two poli­ci­es ins­tead of one. This incre­a­ses the cos­ts, but not the insuran­ce sums.

30% of all court cases pen­ding against mem­bers of the exe­cu­ti­ve board are also direc­ted against the super­vi­so­ry board. In addi­ti­on to that the­re are the threa­tened dis­pu­tes and regres­ses posed by the exe­cu­ti­ve board against the super­vi­so­ry board out­side of court.

The con­sump­ti­on of the D&O insuran­ce sum is often pre­ce­ded by a claim. The super­vi­so­ry board is invol­ved in this claim.

If the D&O insuran­ce sum is used up by a loss which the exe­cu­ti­ve board alo­ne is respon­si­ble for, and the los­ses exceed the insuran­ce sum, is a sepa­ra­te super­vi­so­ry board poli­cy with its own insuran­ce sum real­ly an addi­tio­nal pro­tec­tion for the super­vi­so­ry board? Or is it ano­t­her deep pocket?

The Annu­al Gene­ral Mee­ting deci­des on the con­clu­si­on of the super­vi­so­ry board poli­cy. Which super­vi­so­ry board would want to draw atten­ti­on to its­elf by asking for some­thing which no other super­vi­so­ry board has: a dou­ble insuran­ce in addi­ti­on to the com­pa­ny insuran­ce of the super­vi­so­ry board.

Nobo­dy can cal­cu­la­te the right amount of the insuran­ce sum for a com­pa­ny. Hence, an inso­lub­le task is not sol­ved by doing it twice, once for the gene­ral D&O insuran­ce and a second time for a sepa­ra­te super­vi­so­ry board poli­cy.

If the dou­ble insuran­ce is to be avoided, the cover of the super­vi­so­ry boards under the com­pa­ny poli­cy must be lifted and trans­fer­red com­ple­te­ly into a sepa­ra­te super­vi­so­ry board D&O. This is pos­si­ble only with the same insu­rers in both D&O poli­ci­es but very dif­fi­cult for mul­ti­ple insu­rers. Howe­ver, this can be a flaw­less and simp­le pro­cess, if no sepa­ra­te super­vi­so­ry board poli­cy is con­clu­ded at all.

The “pri­so­ner dilem­ma” is only men­tio­ned as a catch­word. The joint defen­se of the exe­cu­ti­ve board and the super­vi­so­ry board faci­li­ta­tes the defen­se. If the com­mu­ni­ty is enfor­ced by ina­de­qua­te insuran­ce sums, it is still a com­mo­na­li­ty. If a sepa­ra­te defen­se is necessa­ry by means of sepa­ra­te poli­ci­es, third par­ties pro­fit from this dis­pu­te. The­se are the lawy­ers and abo­ve all the inju­red par­ties. The pre­sen­ta­ti­on and the bur­den of pro­of is con­si­der­ab­ly faci­li­ta­ted by any dis­agree­ments bet­ween the super­vi­so­ry board and the exe­cu­ti­ve board. The joint defen­se sys­tem under a sin­gle com­pa­ny poli­cy is end­an­ge­red and wea­ke­ned by sepa­ra­te board poli­ci­es and poten­ti­al­ly cau­ses the oppo­si­te out­co­me than that which was anti­ci­pa­ted.

Con­clu­si­on: Bet­ter one high tower only than two smal­ler and lea­ning towers.

Prospectus Liability Insurance

Pro­spec­tus lia­bi­li­ty insuran­ce pro­vi­des insuran­ce cover for the pro­spec­tus lia­bi­li­ty risk of the issuing com­pa­ny and its organs as well as other respon­si­ble peop­le at banks or law- and accoun­ting firms in the case of an issu­an­ce of secu­ri­ties.

Other names are POSI and IPO. The abbre­via­ti­on POSI stands for “Public Offe­ring of Secu­ri­ties Insuran­ce”. Alter­na­tively, the IPO poli­cy is also used for “Initi­al Public Offe­ring” of secu­ri­ties. The term „pro­spec­tus“ may be used as a trans­la­ti­on. It is about the pro­spec­tus lia­bi­li­ty risk of the issuing com­pa­ny, its organs as well as addi­tio­nal ser­vice pro­vi­ders. The cor­re­spon­ding pro­ducts are more widespread and more com­mon in Anglo-Ame­ri­can coun­tries than in Ger­ma­ny.

Con­tra­ry to the con­ti­nuous risk of organ lia­bi­li­ty, the issu­an­ce of secu­ri­ties is a one-off tran­sac­tion. Howe­ver, then a lot of money is at sta­ke. This indi­ca­tes an incre­a­se in the insuran­ce sum and an inde­pen­dent poli­cy. The num­ber of ser­vice pro­vi­ders invol­ved in such an issue is high. The con­clu­si­on of a sepa­ra­te IPO / POSI poli­cy may have been con­trac­tual­ly agreed. The cir­cle of insu­red per­sons and com­pa­nies goes bey­ond that of a D&O poli­cy. The cos­ts for this poli­cy are added to the cost of the issu­an­ce. The POSI also covers the lia­bi­li­ty risk of the com­pa­nies, while the D&O poli­cy is limi­ted to the risk of the lia­bi­li­ty of board mem­bers.

Cyber

For the purcha­se of a Cyber Cover we first refer to the per­sons respon­si­ble for IT insuran­ce. They can­not be over­loo­ked, and they have a decisi­ve say in risk and demand ana­ly­sis.

Qui­te honest­ly, as a ser­vice pro­vi­der, we con­ti­nue to avoid this boom whe­re-ever pos­si­ble. The fre­quent allo­ca­ti­on of this pro­duct to the Finan­cial Lines does not alter the fact that the cyber risk and its insuran­ce goes far bey­ond the Finan­cial Lines. The cyber topic affects many fiel­ds of respon­si­bi­li­ty and inte­rests on all sides and does not come out of the star­ting holes as an inde­pen­dent line of insuran­ce busi­ness.

The vague term „cyber“ can­not be found in eit­her the fide­li­ty insuran­ce or the D&O insuran­ce. This also app­lies to other lines of insuran­ce busi­ness. The shift of the real into the digi­tal world does not alter the insuran­ce con­di­ti­ons that have alrea­dy been avail­ab­le for any real risks. Hence, they inad­vertent­ly cove­r­ed cyber risks from the out­set. The spa­re parts sepa­ra­ti­on and almost all clas­ses of insuran­ce were alrea­dy the­re befo­re the PC and the Inter­net. This has not chan­ged to this day.

The­re­fo­re, the­re are ves­ted rights among insu­red per­sons and insu­rers. A crime insu­rer knows more about the cyber-crime risk than a cyber-under­wri­ter. This also app­lies to the inter­rup­ti­on of ope­ra­ti­ons and other lines of busi­ness.

New cyber devi­si­ons are not to be expec­ted any time soon. In 1984 the­re was the first Cyber-Poli­ce in Ger­man lan­guage. The ABCM 84 was a cover for the com­pu­ter abu­se risk, which was alrea­dy cove­r­ed in the com­mer­cial crime insuran­ce. 1995 this sepa­ra­ti­on was abolis­hed. In other sec­tors, no attempt has ever been made to intro­du­ce a cyber exclu­si­on. A mar­ket for cyber insuran­ce can­not evol­ve without the deli­mi­ta­ti­on of exclu­si­ons in all rele­vant sec­tors. The cyber-risk is gigan­tic and can even grow to an uninsura­ble size, e.g. The Cyber-War and cumu­lus risks. At pre­sent, claims for the total volu­me of pre­mi­ums for cyber poli­ci­es world­wi­de are below $ 5 bil­li­on. For Ger­ma­ny, a pre­mi­um volu­me of less than EUR 30 mil­li­on was esti­ma­ted in 2016. For the US, experts esti­ma­ted a pre­mi­um volu­me of $ 3 bil­li­on. The risk of the fati­gue of sales efforts to build a cyber insuran­ce mar­ket is cur­r­ent­ly at least as gre­at as the chan­ce of a gre­at bre­akthrough in this small mar­ket.

The cyber insuran­ce mar­ket is not yet boo­m­ing. First mover advan­ta­ges are not yet reco­gniz­ab­le. The mar­ke­ting depart­ments do not mana­ge yet to pre­sent dai­ly press examp­les, which demons­tra­te the need for an addi­tio­nal cyber cover as they do not pro­vi­de more pro­tec­tion than exis­ting poli­ci­es. The small cyber-extras are quick­ly reco­gni­zed and inte­gra­ted through clau­ses in the exis­ting coverings. The chan­ges are inclu­ded at a low pre­mi­um cost and without gre­at com­mu­ni­ca­ti­on expen­ses. The cyber dis­cus­sion impro­ves the cyber insuran­ce pro­tec­tion and the risk pre­ven­ti­on. Howe­ver, it does not yet lead to the boom of an inde­pen­dent class of insuran­ce busi­ness. This is not to be expec­ted after the gre­at efforts of the last years. Con­fe­ren­ces with several hund­red par­ti­ci­pants only con­firm that the risk is con­si­de­red to a gre­at extent but cove­r­ed only decen­tra­li­zed wit­hin the old clas­ses of insuran­ce busi­ness.

The con­cept of cyber in the area of Finan­cial Lines is not its­elf defi­ned. Insu­rers use a simp­le way of loo­king at them by sta­ting what actions are cove­r­ed in their insuran­ce con­di­ti­ons. The fol­lowing are usual­ly cove­r­ed:

Net­work Attacks: This is the actu­al or alle­ged­ly unaut­ho­ri­zed access to, or use of, a data pro­ces­sing sys­tem of insu­red per­sons, resul­ting in data loss, unaut­ho­ri­zed data pro­ces­sing, infec­tion or trans­mis­si­on of mal­wa­re.

  • Deni­al-of-Ser­vice (DoS): Is an attack via a net­work or the Inter­net whe­re a data pro­ces­sing sys­tem is made inac­ces­si­ble to aut­ho­ri­zed users
  • „Phis­hing“ attack: Frau­du­lent e‑mails are sent to users in order to bait them to „bad“ web­sites
  • „Phar­ming“ attack: See phis­hing, only this is case the cri­mi­nals use a pre­ten­ded IP address ins­tead of an email

Unaut­ho­ri­zed access: This refers to the access to the net­work of the insu­red par­ty or to infor­ma­ti­on stored the­re, by an unaut­ho­ri­zed per­son or by an aut­ho­ri­zed per­son in an unaut­ho­ri­zed man­ner, inclu­ding the theft of data sto­rage devices.

Data loss: This is the actu­al or poten­ti­al loss, for­ge­ry, dest­ruc­tion or unaut­ho­ri­zed use of per­so­nal or con­fi­den­ti­al data.

Extor­ti­on: This is a money pay­ment requi­red to pre­vent an attack on the net­work, a loss of data or the vio­la­ti­on of per­so­nal rights.

Directors & Officers Liability insurance (D&O)

D&O insuran­ce pro­vi­des coverage for finan­cial loss on account of direc­tors’ and offi­cers’. Coverage is avail­ab­le for all types of legal enti­ties like publicly tra­ded AG’s, limi­ted com­pa­nies (GmbH’s), publicly owned com­pa­nies, asso­cia­ti­ons and non for pro­fit orga­niz­a­ti­ons. Part­ners­hips can also cover their direc­tors’ and offi­cers’ expo­sure. Coverage is exten­ded to sub­si­dia­ries auto­ma­ti­cal­ly. D&O insuran­ce covers cos­ts for the defen­se against unju­s­ti­fied claims as well as indem­ni­fi­ca­ti­on from legi­ti­ma­te claims for finan­cial los­ses. Nowa­days, befo­re a mana­ger enters the ser­vice of a new employ­er, he will ask for the inclu­si­on of a D&O in his or her ser­vice con­tract. D&O is the main pro­duct of the Finan­cial Lines. Today, it is indis­pensable for all manage­ment board mem­bers, mana­ging direc­tors and super­vi­so­ry boards.

D&O Personal Policy

Ger­ma­ny has more indi­vi­du­al poli­ci­es and self-reten­ti­on poli­ci­es than most other coun­tries. Here, about 3% of all mana­gers have com­ple­ted their own per­so­nal coverage, in addi­ti­on to the D&O com­pa­ny poli­cy. Over 97% of the mem­bers of the exe­cu­ti­ve board and the super­vi­so­ry board bear a deduc­ti­ble of up to 1.5 times the annu­al fixed sala­ry if they are employ­ed by a stock cor­po­ra­ti­on. The­re are various pro­ducts for the purcha­sers of the deduc­ti­ble poli­ci­es: incen­ti­ve model, regress model, cumu­la­ti­ve model or the con­nec­tion model. The­re are also genui­ne dou­ble insuran­ces, which form addi­tio­nal cover for the mana­ger, regard­less of the com­pul­so­ry deduc­ti­ble under the Ger­man Stock Cor­po­ra­ti­on Act and without a rela­ti­ons­hip to the com­pa­ny poli­cy. This is also refer­red to as a „hiking poli­cy“ becau­se it accom­pa­nies the mana­ger in an employ­er chan­ge.

All the­se pro­duct solu­ti­ons are uni­que in the world and still have to pro­ve their per­for­mance. As a rule, the com­pa­ny taking the D&O insuran­ce is the poli­cy­hol­der and the deb­tor. Its mem­bers are the bene­fi­cia­ries of this insuran­ce on the account of the third par­ty, name­ly the pre­mi­um paid by the com­pa­ny. In the case of the D&O sin­gle poli­cy, a natu­ral per­son is at the same time the poli­cy­hol­der, insu­red per­son and pre­mi­um deb­tor. The mana­gers thus pay for them­sel­ves the insuran­ce of a risk that would not exist without the com­pa­ny. The com­pa­ny is only a „legal per­son“. It can­not act without real peop­le, ie the direc­tors and mana­ging direc­tors. The fact that they them­sel­ves pay for an insuran­ce pro­tec­tion to be able to ope­ra­te for the legal per­son, does not necessa­ri­ly make sen­se as the mana­gers can also act without the com­pa­nies. While the com­pa­nies can­not par­ti­ci­pa­te in legal tran­sac­tions without a mana­ger.

The Poli­cy­hol­der of a per­so­nal D&O‑Policy is of cour­se the mana­ger and not a com­pa­ny. The pre­mi­um is paid by the indi­vi­du­al mana­ger. The Law about appro­pria­te Board Mem­ber Remu­ne­ra­ti­on (Vors­tAG 2009) crea­ted a mar­ket for per­so­nal D&O poli­ci­es. Until the end of 2010 about 3.000 to 5.000 of the­se Poli­ci­es were bought. Befo­re 2009 the­re was no inte­rest in buy­ing D&O with pri­va­te money. Then sec. 93 II S. 3 AktG was estab­lis­hed by the Vors­tAG. It crea­tes a duty for Com­pa­nies tra­ded by shares who buy D&O‑insurance, to imple­ment a deduc­ti­ble for Mana­ging Board Mem­bers of at least 10 % of the loss or 1,5 times their fixed annu­al pay­ment.

A chan­ge to the Ger­ma­ny Cor­po­ra­te Gover­nan­ce Code fol­lo­wed in the same year. Sec. 3.8 of the DCGK recom­mends the same man­da­to­ry deduc­ti­ble for Super­vi­so­ry board mem­bers of publicly tra­ded AG’s. In 2008 the recom­men­da­ti­on of the Code regar­ding the appro­pria­te reten­ti­on was fol­lo­wed by 77,8 %. The­re are about 15.000 AG’s and among them the­re are the big­gest com­pa­nies of Ger­ma­ny. The AG is the examp­le for other types of legal enti­ties. Some of the big­ger limi­ted com­pa­nies (GmbH) alrea­dy imple­men­ted this deduc­ti­ble vol­un­ta­ri­ly. For publicly owned enti­ties the same deduc­ti­ble was made man­da­to­ry by the Public Cor­po­ra­te Gover­nan­ce Code.

Today the­re are too many dif­fe­rent pro­ducts. The pre­mi­um cal­cu­la­ti­on is a bit con­fu­sing as well. Some per­so­nal poli­ci­es have a nar­row scope of coverage limi­ted to defen­se cos­ts only. Others pro­vi­de the same pro­tec­tion as the cor­po­ra­te D&O‑policy and pro­vi­de per­so­nal limits which are even hig­her than the a.m. recom­men­da­ti­ons. The­re is an open deba­te on princi­ples of com­pli­an­ce regar­ding the inter­ac­tion bet­ween per­so­nal and cor­po­ra­te D&O poli­ci­es.

In the case of D&O indi­vi­du­al poli­ci­es, the ques­ti­on ari­ses whe­ther only the top posi­ti­on of the mana­ger at the parent orga­niz­a­ti­on or other board posi­ti­ons at sub­si­dia­ry level as well could be inclu­ded. First of all that needs to be repor­ted to the insu­rer. Depen­ding on the indi­vi­du­al case, it is necessa­ry to dis­cuss how much insuran­ce sum should be reser­ved for intra-group man­da­tes. Often times insu­rers don´t want this exten­si­on.

D&O Coverage Dispute Legal Expense Cost Coverage (D&O‑CDC)

photo of tree made of dollars

The D&O Coverage Dis­pu­te Cover (D&O‑CDC) is inten­ded to finan­ce the legal cos­ts of an action against an unju­s­ti­fied refu­sal of the D&O insu­rer. If a mana­ger is liable and does not get D&O coverage, it is pro­bable that he also has no money to sue the D&O insu­rer.

If you have com­ple­ted D&O‑CDC, you are often not afraid of any addi­tio­nal cos­ts and are usual­ly very trus­ting. We, howe­ver, recom­mend the noti­ce of this insuran­ce without any repla­ce­ment. We do not offer indi­vi­du­al opti­miz­a­ti­on of the stan­dard D&O‑CDC. We would like to give you some rea­sons:

If the D&O‑CDC insu­rer con­si­ders that the D&O insurer’s lia­bi­li­ty for reim­bur­se­ment is jus­ti­fied and the pro­spec­tus of suc­cess for the indem­ni­ty insuran­ce is denied, the­re is no insuran­ce cover.

World­wi­de the­re are no other lines of insuran­ces which have a spe­ci­fic addi­tio­nal coverage dis­pu­te legal cost coverage (1). Out­side of Ger­ma­ny the D&O‑CDC is unknown (2). In D&O insuran­ce, refu­sal is extre­me­ly rare (3). Suc­cess­ful cover lawsuits against D&O insu­rers are extre­me­ly rare (4). Whe­ther a D&O‑CDC still exists at all is ques­tion­ab­le when the D&O cover is refu­sed, becau­se it can be ter­mi­na­ted in the years pre­ce­ding the refu­sal (5). Bet­ween the D&O insuran­ce case and the D&O poli­cy rejec­tion are regu­lar­ly three to seven years. During this peri­od, the D&O‑CDC poli­cy must be exten­ded annu­al­ly. Sin­ce the D&O insurer’s reser­va­tions are announ­ced in wri­ting very ear­ly, the D&O‑CDC insu­rer has ple­nty of time to con­si­der an incre­a­se in pre­mi­um or a can­cel­la­ti­on. Thus we just want to point out that you would actual­ly need an addi­tio­nal Coverage Dis­pu­te Cover against the D&O‑CDC insu­rer, too. If you do not trust the D&O insu­rer, why should you trust the D&O‑CDC insu­rer?

The D&O‑CDC is a very bad solu­ti­on for the insu­red.

EPL (Employment Practices Liability insurance, EPLI)

EPL insuran­ce affords coverage in case of claims for dama­ges of for­mer, pre­sent and future employees asso­cia­ted with:

  • discri­mi­na­ti­on,
  • sexu­al harass­ment,
  • wrong­ful dis­mis­sal and
  • other wrong­ful acts rela­ted to employ­ment or job app­li­ca­ti­on.

and other legal grounds for the employ­ment or employ­ment rela­ti­ons­hip.

The Gene­ral Equal Tre­at­ment Act (AGG) came into for­ce on August 18, 2006, qui­te late and also delay­ed. Befo­re the AGG the EPL was very rare in Ger­ma­ny. You can find an up-to-date over­view of the AGG claims at the Anti-Discri­mi­na­ti­on Bureau of the Fede­ra­ti­on in the publi­ca­ti­on „Aus­ge­wähl­te Ent­schei­dun­gen deut­scher Gerich­te zum Anti­dis­kri­mi­nie­rungs­recht” (“Selec­ted Decisi­ons of Ger­man Courts on Anti-Discri­mi­na­ti­on Law”) at:

http://www.antidiskriminierungsstelle.de/SharedDocs/Downloads/DE/publikationen/Rechtsprechungs%C3%BCbersicht/rechtsprechungsuebersicht_zum_antidiskriminierungsrecht.pdf?__blob=publicationFile

EPL is still the pre­do­mi­nant abbre­via­ti­on. EPLI (EPL-Insuran­ce) is the com­mon abbre­via­ti­on for the world­wi­de cover.

In com­pa­ri­son to D&O‑policies EPL-poli­ci­es fea­ture some dif­fe­ren­ces. The cate­go­ry of insu­red per­sons is bey­ond the scope of board mem­bers and inclu­des all employees and staff mem­bers. The defi­ni­ti­on of loss has to be broa­den­ed, as per­so­nal dama­ges might appe­ar here as well. It’s extre­me­ly important to inclu­de claims sole­ly against the com­pa­ny. Mixed cases have to be cove­r­ed too.

For a world­wi­de coverage, we always recom­mend poli­ci­es in Eng­lish. To grant a world­wi­de EPLI coverage in the Ger­man con­trac­tu­al lan­guage is an ambi­tious under­ta­king against the back­drop of the high­ly deve­lo­p­ped case law and ter­mi­no­lo­gy in the USA and Com­mon Law coun­tries. The exten­si­ve sta­tis­ti­cal sur­veys of such cases in the US are pre­pa­red by the EEOC (U.S. Equal Employ­ment Oppor­tu­ni­ty Com­mis­si­on) sor­ted by case groups and publis­hed under:

http://eeoc.gov/eeoc/statistics/index.cfm
http://eeoc.gov/eeoc/statistics/enforcement/index.cfm

It is pos­si­ble to com­pa­re the­se ela­bo­ra­te acti­vi­ties of the aut­ho­ri­ties in the USA, which are equip­ped with exten­si­ve inves­ti­ga­ti­on rights, only with the Ger­man labor law juris­dic­tions. The United Sta­tes does not, of cour­se, have the­se juris­dic­tions. In addi­ti­on to the EEOC, the US also has claims for dama­ges which exceed the sum of the mon­th­ly sala­ries, in which the Ger­man labor law cal­cu­la­tes, by a hund­red­fold. The claims for com­pen­sa­ti­on for employ­ment in the USA and incre­a­singly also in the Com­mon Law coun­tries are an incal­cul­ab­le risk for the Ger­man com­pa­nies ope­ra­ting the­re. The­re­fo­re, this requi­res an insuran­ce solu­ti­on. For every 1000 employees in the US the­re is at least one EPL claim made per year. This is a fre­quen­cy risk with unli­mi­ted claims, if the pro­fes­sio­nal pro­se­cu­tors can sub­mit their cases to a jury. HR trai­ning and HR gui­de­li­nes are still suf­fi­ci­ent for the AGG risk. Howe­ver, in the US, such Employee Hand­books count only as much as a pre­re­qui­si­te for obtai­ning a bid for EPL poli­ci­es.

EPL poli­ci­es in Ger­man, which can be com­pa­red with the EPLI poli­ci­es writ­ten in Eng­lish, have only exis­ted for a few years. Legal cost pro­tec­tion insuran­ce poli­ci­es have not been able to enfor­ce lia­bi­li­ty insuran­ce poli­ci­es and are not recom­men­ded.

In the Ger­man D&O poli­ci­es, the clau­ses with which solu­ti­ons for the EPL risk have been offe­red pre­vious­ly, have now disap­peared in favor of com­pre­hen­si­ve EPLI poli­ci­es. Here par­ti­al sub-limits were pro­vi­ded for the insu­red per­sons and rare­ly also a sub­li­mi­ti­zed EPL enti­ty cover for the D&O insu­red com­pa­nies.

Excess Policies

The inter­play bet­ween the pri­ma­ry insu­rer and the Excess and Coinsuran­ce poli­ci­es has beco­me the sub­ject of incre­a­singly dif­fe­ren­tia­ted agree­ments in recent years. We have many years of expe­ri­ence with major out-of-court pro­grams at home and abroad. Only a few excep­ti­ons sti­pu­la­ted by insu­rers can be accep­ted without impro­ve­ments.

Outside Directorship Liability (ODL)

The risk insu­red under ODL poli­ci­es is simi­lar to that of D&O insuran­ce. Coverage howe­ver, is only pro­vi­ded for out­side direc­tor­s­hip posi­ti­ons in the super­vi­so­ry or advi­so­ry board of an exter­nal orga­niz­a­ti­on. The D&O extends its coverage to all Direc­tors and Offi­cers of the parent orga­niz­a­ti­on and the sub­si­dia­ries. Out­side com­pa­nies are no sub­si­dia­ries. The­re­fo­re the D&O poli­cy does not cover the out­side direc­tors. The risk of out­side direc­tor­s­hip may be inclu­ded in the D&O by a spe­cial endor­se­ment.

For medi­um-sized com­pa­nies, ODL coverage is also inclu­ded in the gene­ral D&O insuran­ce con­di­ti­ons. The pos­si­bi­li­ties for designing addi­tio­nal covers are nume­rous. At the begin­ning, howe­ver, the risk has to be asses­sed. Often, it is unclear who is taking which exter­nal man­da­te.

Fiduciary Liability (Pension Trustee Liability)

The Fidu­cia­ry or Pen­si­on Trus­tee Lia­bi­li­ty insuran­ce is a com­bi­na­ti­on of D&O and E&O coverage for pen­si­on plans, trus­tees, admi­nis­tra­tors, the employ­er com­pa­nies and the trus­tee com­pa­nies.

The pen­si­on obli­ga­ti­ons of DAX com­pa­nies amount to 30% of their mar­ket capi­ta­liz­a­ti­on. The pre­sent value of the pen­si­on obli­ga­ti­ons of the DAX com­pa­nies amoun­ted to approx. € 246 bil­li­on in 2006 and € 372 bil­li­on in 2014. Accord­in­gly the inte­rest of ana­lysts, rating agen­ci­es and inves­tors regar­ding ade­qua­te reser­ves is very high.

From an inter­na­tio­nal point of view it has a nega­ti­ve effect on a company’s finan­cial ratio, for examp­le the return on equi­ty, if the pen­si­on reser­ves remain in its finan­cial state­ments. At least the assess­ment of a com­pa­nies’ finan­cial per­for­mance will be har­der. When the rating com­pa­nies the­re­fo­re star­ted to redu­ce the rating of DAX com­pa­nies, the out­sour­cing of pen­si­on lia­bi­li­ties and pen­si­on assets began. Without a spin-off, solid pro­vi­si­ons for pen­si­on obli­ga­ti­ons can also incre­a­se the risk of a hos­ti­le take­over for the com­pa­ny.

The out­sour­cing has addi­tio­nal advan­ta­ges. The sepa­ra­ti­on allows for a first-time a selec­ted manage­ment and con­trol of the pen­si­on fund. The objec­ti­ves of a pen­si­on fund dif­fer from tho­se of the employer.It is pos­si­ble to illus­tra­te the finan­cial deve­lo­p­ment trans­par­ent­ly to future pen­sio­ners and can­di­da­tes. In addi­ti­on bene­fi­cia­ries and can­di­da­tes can co-ope­ra­te for the first time. Mem­bers of the human resource‑, legal- and finan­ce depart­ments and repre­sen­ta­ti­ves of employees and staff of com­pa­nies are typi­cal­ly board mem­bers of legal­ly inde­pen­dent pen­si­on sche­mes. Due to tax rea­sons the plans are und­er­fun­ded. Ope­ra­ting with high long term lia­bi­li­ties and per­forming like small life insu­rers the trus­tees are facing a per­so­nal expo­sure.

In coun­tries like the UK and the USA it is well known, why a sepa­ra­te PTL-Poli­cy is nee­ded and why this expo­sure has to be dis­tin­guis­hed from the D&O- and E&O‑Exposure of the employ­er com­pa­nies and their mana­gers. The­re a sepa­ra­ti­on of pen­si­on funds is cus­to­ma­ry and part­ly legal­ly com­pul­so­ry. Due to the more fre­quent spin-offs from the balan­ce she­ets of the Ger­man parent and sub­si­dia­ry com­pa­nies, PTL poli­ci­es beco­me now also more important in Ger­ma­ny.

PTL coverage is use­ful for several rea­sons. What rea­sons in par­ti­cu­lar? This has to be figu­red out for every sin­gle case sepa­r­ate­ly:

  • The D&O poli­ci­es have cor­re­spon­ding exclu­si­ons abroad, if the­re is alrea­dy a sepa­ra­te manage­ment of pen­si­on funds.
  • Con­struc­tively the­se pen­si­on assets are often extrac­ted from the group balan­ce she­ets. In Ger­ma­ny the­re­fo­re often cer­ti­fied trust agree­ments (CTA) are crea­ted, whe­re two incor­po­ra­ted socie­ties (e.V.’s) ope­ra­te as trus­tees, one for the admi­nis­tra­ti­on of assets and one for the employees. The acti­vi­ty insu­red in the D&O insuran­ce poli­cy is equa­ted with the com­pa­ny pur­po­se. This dif­fers from the aims pur­sued by pen­si­on plan assets and CTA’s. As a result, no acti­vi­ty regar­ding the manage­ment of the pen­si­on assets is insu­red wit­hin the D & O insuran­ce if the par­ty is a legal per­son of a company’s pen­si­on sche­me.
  • The defi­ni­ti­on of sub­si­dia­ry of the employ­er com­pa­ny does not inclu­de the trus­tee com­pa­nies. This has tax‑, com­mer­cial- and accoun­ting law rea­sons.
  • Eco­no­mi­c­al­ly a sepa­ra­ti­on would be incom­ple­te, if the­re would exist just one D&O limit. To whom should the insol­ven­cy admi­nis­tra­tor request pay­ment?
  • Acting duti­ful­ly for the employ­er com­pa­ny can be also a bre­ach of duty regar­ding the trus­tee com­pa­ny. The con­si­de­ra­ti­on of acting as direc­ted by the employ­er com­pa­ny often rai­ses this type of ques­ti­ons in respect of poten­ti­al con­flicts of inte­rest.

The magnitu­des of the pen­si­on pro­vi­si­ons reco­gni­zed for tax pur­po­ses may exceed the equi­ty. In 2014 the pen­si­on lia­bi­li­ties of the DAX com­pa­nies tota­led EUR 372 bil­li­on. This topic is sub­ject to the D&O insuran­ce, if the lia­bi­li­ties and the pro­vi­si­ons are not out­sour­ced. The mem­bers of the gover­ning body respon­si­ble for out­sour­ced pen­si­on pro­vi­si­ons are often sent by the spon­so­ring com­pa­ny to the legal enti­ties, most­ly regis­tered asso­cia­ti­ons, which are estab­lis­hed for this pur­po­se. This is alrea­dy a con­flict of inte­rest. The pen­si­on fund direc­tors should be insu­red through their own com­bi­na­ti­on of D&O and E&O coverage, the so-cal­led pen­si­on trus­tee lia­bi­li­ty or fidu­cia­ry lia­bi­li­ty. In the event of insol­ven­cy of the spon­so­ring com­pa­ny, the­se pen­si­on funds should then func­tion as small life insu­rers. The pro­blems begin with the fact that the data pro­ces­sing of the per­son­nel admi­nis­tra­ti­on and their per­son­nel can no lon­ger be acces­sed, sin­ce the­se belong to the insol­vent spon­so­ring com­pa­ny. The pen­si­on com­mit­ments were based on posi­ti­ve inte­rest rates. The pen­si­on lia­bi­li­ties, which are exclu­ded from the balan­ce she­ets of the spon­so­ring com­pa­nies, may not be ful­ly finan­ced. For tax rea­sons, the pen­si­on funds must show a defi­cit. It remains to be seen how they will be rep­le­nis­hed in an envi­ron­ment of low or even nega­ti­ve inte­rest rates. Today, even lar­ger life insu­rers are in “man-mar­king“ and have to deli­ver quar­ter­ly reports to BaFin. The ongo­ing ero­si­on of inte­rest rates also repres­ents a gro­wing risk for pen­si­on funds. If pro­fes­sio­nal­ly mana­ged life insu­rers give up, the vol­un­ta­ri­ly acti­ve organs of pen­si­on funds should insist on the con­clu­si­on of their own PTL poli­cy.

Initial Public Offering insurance (IPO), Public Offering of Securities insurance (POSI)

Pro­spec­tus lia­bi­li­ty insuran­ce pro­vi­des insuran­ce cover for the pro­spec­tus lia­bi­li­ty risk of the issuing com­pa­ny and its organs as well as other respon­si­ble peop­le at banks or law- and accoun­ting firms in the case of an issu­an­ce of secu­ri­ties.

Other names are POSI and IPO. The abbre­via­ti­on POSI stands for “Public Offe­ring of Secu­ri­ties Insuran­ce”. Alter­na­tively, the IPO poli­cy is also used for “Initi­al Public Offe­ring” of secu­ri­ties. The term „pro­spec­tus“ may be used as a trans­la­ti­on. It is about the pro­spec­tus lia­bi­li­ty risk of the issuing com­pa­ny, its organs as well as addi­tio­nal ser­vice pro­vi­ders. The cor­re­spon­ding pro­ducts are more widespread and more com­mon in Anglo-Ame­ri­can coun­tries than in Ger­ma­ny.

Con­tra­ry to the con­ti­nuous risk of organ lia­bi­li­ty, the issu­an­ce of secu­ri­ties is a one-off tran­sac­tion. Howe­ver, then a lot of money is at sta­ke. This indi­ca­tes an incre­a­se in the insuran­ce sum and an inde­pen­dent poli­cy. The num­ber of ser­vice pro­vi­ders invol­ved in such an issue is high. The con­clu­si­on of a sepa­ra­te IPO / POSI poli­cy may have been con­trac­tual­ly agreed. The cir­cle of insu­red per­sons and com­pa­nies goes bey­ond that of a D&O poli­cy. The cos­ts for this poli­cy are added to the cost of the issu­an­ce. The POSI also covers the lia­bi­li­ty risk of the com­pa­nies, while the D&O poli­cy is limi­ted to the risk of the lia­bi­li­ty of board mem­bers.

International insurance Programs

IVPs have so far rare­ly been app­lied to Finan­cial Lines. While no one denies the need for legal con­duct and com­pli­an­ce, it was main­ly a prac­ti­cal con­si­de­ra­ti­ons that hin­de­red the imple­men­ta­ti­on of local poli­ci­es. In par­ti­cu­lar, the mul­ti­ple world­wi­de repli­ca­ti­on of an insuran­ce regar­ded as a vault poli­cy appeared to be mea­ningless. Howe­ver, cur­r­ent­ly inter­na­tio­nal com­pa­nies are con­fron­ted with a con­si­der­ab­ly sen­si­ti­zed envi­ron­ment. The incre­a­sed atten­ti­on paid to cor­po­ra­te com­pli­an­ce in the cour­se of cor­po­ra­te affairs has shar­pe­ned the focus on legal cer­tain­ty world­wi­de, espe­cial­ly in insuran­ce super­vi­si­on and taxa­ti­on.

With the imple­men­ta­ti­on of local coverings, nume­rous ques­ti­ons ari­se con­cer­ning the adap­t­ati­on of the poli­ci­es as well as the exact coor­di­na­ti­on of the inter­lo­cking clau­ses. We have broad expe­ri­ence with the instal­la­ti­on of such inter­na­tio­nal pro­grams in Finan­cial Lines. The­re is still a deba­te on princi­ples wit­hin the insuran­ce indus­try. A net­work of local poli­ci­es has signi­fi­cant inter­ac­tions with the so-cal­led „mas­ter“ and „excess“ poli­ci­es. The need to imple­ment a local poli­cy has to be eva­lua­ted for every enter­pri­se in par­ti­cu­lar cases.

We are a mem­ber of the glo­bal net­work UNI­SON­Bro­kers AG.

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Package Policies

In the case of Finan­cial Lines, the­re are many com­bi­na­ti­on pro­ducts which are alrea­dy offe­red by various insu­rers as com­bi­ned Gene­ral Terms and Con­di­ti­ons. For indi­vi­du­al cases the­re can also be indi­vi­du­al com­bi­na­ti­on solu­ti­ons. The­re are a num­ber of pos­si­bi­li­ties here, which gene­ral­ly offer cost, per­for­mance and sim­pli­fi­ca­ti­on advan­ta­ges. Howe­ver, the­se must also be com­pa­red cri­ti­cal­ly with the alter­na­ti­ve sin­gle solu­ti­ons. This is often the pro­blem. A final lis­ting is not pos­si­ble. Alt­hough a lot is fea­si­ble, the star­ting point is the indi­vi­du­al risk pro­fi­le and insuran­ce requi­re­ment of the cus­to­mer.

Kidnap, Ransom & Extortion insurance (KR&E)

The Kid­nap, Ran­som & Extor­ti­on insuran­ce pro­vi­des insuran­ce coverage in cases of kid­nap­ping and extor­ti­on of fami­ly and com­pa­ny mem­bers.

Publi­ka­ti­on Leip­zi­ger PDF (960KB)

If an employee deli­vers a suit­ca­se full of money of his com­pa­ny to a kid­nap­per, he won’t get any rece­i­pt in return. Spe­ci­fic inter­nal rules of com­pe­ten­ces are often mis­sing. Direc­tors and offi­cers have to make quick decisi­ons. No mat­ter whe­ther the money trans­fer had been suc­cess­ful or not, the ques­ti­on of D&O‑liability may occur. As the­re is the spe­cial insuran­ce pro­duct KR&E, the claims hand­ling under a D&O poli­cy won’t be suc­cess­ful. The­re is no case law avail­ab­le and the­re­fo­re this is a grey area. Howe­ver, cor­re­spon­ding claims have alrea­dy been made under D&O poli­ci­es, espe­cial­ly in con­nec­tion with mate­ri­al thre­ats and thre­ats against the com­pa­ny.

Regu­la­ti­on under the D&O poli­cy will not be suc­cess­ful becau­se the­re are spe­cial insuran­ce pro­ducts for the­se cases. Alrea­dy the ques­ti­on whe­ther the for­ced sur­ren­der of money is a finan­cial loss will be dis­pu­ted. Addi­tio­nal­ly the­re are many cau­sal ques­ti­ons. For examp­le the ques­ti­ons of know­ledgab­le breaches of duty are also dif­fi­cult to ans­wer, such as the ques­ti­on about the duty of law­ful beha­vi­or. Docu­men­ta­ti­on requi­re­ments are hard­ly achiev­a­ble. Fur­ther­mo­re, the­re are of cour­se no coverage dis­pu­tes in court.

The kid­nap­ping of Charles Lindbergh’s Baby was the sad occa­si­on for a Lloyd’s Syn­di­ca­te to offer the first kid­nap­ping poli­cy in the thir­ties of the last cen­tu­ry. Until 1998 KR&E insuran­ce was seen as an offen­se against the Ger­man ord­re public by the BAV (§138 Abs.1 BGB and Art. 6 EGBGB). Unli­ke to other coun­tries KR&E insuran­ce poli­ci­es can­not be offe­red as com­bi­ned pro­ducts in Ger­ma­ny. There’s a ban on adver­ti­sing and a duty of dis­clo­sure to the poli­cy. The insu­red should only inform three per­sons about this insuran­ce. The KR&E‑department has to be direct­ly below the board of direc­tors. The com­mu­ni­ca­ti­on and con­tracts have to be done anony­mous­ly.

On the pro­duct side the­re is the Kid­nap­ping and the Pro­duct Black­mail insuran­ce. The lat­ter has, among other things, to sol­ve a recall cost pro­blem, which also occurs with the self-recall. The­re­fo­re, this is part­ly desi­gned as a fol­low-up to pro­duct lia­bi­li­ty insuran­ce.

Risk pre­ven­ti­on and risk manage­ment are very important topics. Ques­ti­ons regar­ding com­pe­ten­ci­es and orga­niz­a­ti­on struc­tures are addres­sed during the under­wri­ting and as part of the poli­cy. Inde­pen­dent Risk Con­sul­tants have to be invol­ved con­trac­tual­ly or optio­nal­ly. The­re are few of the­se world­wi­de ope­ra­ting Risk Advi­sors. Often they requi­re a KR&E Poli­cy to be pla­ced pri­or to their assign­ment.

Side A D&O

A cor­po­ra­te D&O poli­cy always has a Side A pro­vi­ding coverage for the indi­vi­du­al direc­tors and offi­cers and a Side B, which covers the cor­po­ra­ti­on in case of indem­ni­fi­ca­ti­on. Both insu­ring clau­ses are nee­ded. In all cases of D&O‑liability both clau­ses, the per­so­nal wrong­ful act and the cor­po­ra­te duty to indem­ni­fy, have to be che­cked. Allo­ca­ti­on issu­es regar­ding defen­se and indem­ni­ty pay­ments and coverage exten­si­ons only for the bene­fit of the cor­po­ra­ti­on, which are some­ti­mes cal­led Side C, may exhaust the limit of the poli­cy. Usual­ly the­re is only one joint poli­cy limit for Side A and Side B.

This rai­ses the ques­ti­on whe­ther the­re will be enough money left to pay the per­so­nal Side A defen­se and indem­ni­ty cos­ts. Capa­ci­ty pro­blems of big cor­po­ra­ti­ons have to be men­tio­ned as well. Chap­ter 11 and other type of insol­ven­cy cases may also jeo­par­di­ze the Side A coverage.

“Side A D&O” is bet­ter cal­led “Side A only”. It is an Excess D&O Poli­cy pro­vi­ding Dif­fe­rence in Con­di­ti­ons and Dif­fe­rence in Limits only for Side A claims. If the joint limit is exhaus­ted “Side A only” coverage will drop down and pro­vi­de an addi­tio­nal capa­ci­ty only for the per­so­nal lia­bi­li­ty of the direc­tors and offi­cers.

Insu­red vs. insu­red lia­bi­li­ty falls under Side A coverage and is qui­te com­mon in Ger­ma­ny. The­re­fo­re and for other good rea­sons an addi­tio­nal “Side A only” limit may be con­si­de­red. This is par­ti­cu­lar­ly true if the poli­cy has addi­tio­nal cover buil­ding blocks, which are in any case only good for the com­pa­ny.

Criminal Defense Cost Cover (CDCC)

In case of a Cri­mi­nal Defen­se Cost Insuran­ce (CDCC) the insu­rer bears the cost incur­red by mem­bers of the exe­cu­ti­ve manage­ment bodies and all other employees of the poli­cy­hol­der, if named pro­cee­dings are ins­ti­ga­ted against him like espe­cial­ly preli­mi­na­ry pro­cee­dings, cri­mi­nal pro­cee­dings, pro­cee­dings for regu­la­to­ry offen­ces, disci­pli­na­ry or pro­fes­sio­nal asso­cia­ti­on pro­cee­dings. The coverage is gran­ted for tho­se pro­cee­dings and cos­ts as lis­ted in the poli­cy. The scope of coverage does not requi­re a cer­tain type of dama­ge. The­re­fo­re the CDCC is not limi­ted to finan­cial los­ses only.

Reports on cri­mi­nal inves­ti­ga­ti­ons and pro­cee­dings against mana­gers are part of the dai­ly press. Envi­ron­men­tal- and pro­duct dama­ges are often the cau­se. FCPA and simi­lar laws rela­ting to eco­no­mic offen­ses are other rea­sons for mana­gers to care about their insuran­ce pro­tec­tion. In cases of finan­cial los­ses, which are also cove­r­ed under a D&O‑Policy, the­re is an inter­ac­tion bet­ween the CDCC and the D&O. In 1983 the CDCC was appro­ved by the Ger­man Super­vi­so­ry Agen­cy for insuran­ce (BAV). The CDCC is dealing with all cos­ts appearing after the ope­ning of any of the a.m. pro­cee­dings. This inclu­des attor­ney fees, extra­ju­di­cial and judi­cial cos­ts for experts, legal cos­ts, joint actions cos­ts and tra­vel cos­ts. The defen­se against white col­lar-crime accu­sa­ti­ons is very expen­si­ve. Of cour­se the­re is no pos­si­bi­li­ty of alter­na­tively ser­ving the sen­tence by a depu­ty and the fines are not insu­red eit­her.

Some insu­rers offer trai­nings and manu­als for “What to do if the pro­se­cu­tor comes?”.

The­re is no shor­ta­ge of dai­ly news­pa­per reports about ongo­ing cri­mi­nal pro­cee­dings against mana­gers. The rea­sons are often envi­ron­men­tal and pro­duct dama­ges. In addi­ti­on to the­se, howe­ver, eco­no­mic cri­mi­nal law also deals with asset dege­ne­ra­ti­on. Here are inter­ac­tions bet­ween the CDCC and the D&O.

Every cri­mi­nal case which cau­sed direct­ly finan­cial los­ses can also unfold rele­van­ce for the D&O insuran­ce on the civil law side. Hence, in almost every D&O Poli­cy the initia­ti­on of preli­mi­na­ry pro­cee­dings is clas­si­fied as an insu­red event which has to be repor­ted as a claim or cir­cum­s­tance.

Usual­ly the ques­ti­ons regar­ding cri­mi­nal beha­vi­or will be ans­we­red first and adjourn all other civil pro­cee­dings. The­re­fo­re, Sec. 101 II S. 2 of the Ger­man insuran­ce Con­tract Law (VVG) con­tains infor­ma­ti­on. The lia­bi­li­ty insu­rer can bear the expen­ses of the cri­mi­nal defen­se coun­sel, if he wants to. This wor­d­ing is repeated in some D&O forms. It should not be mixed up with a cri­mi­nal defen­se cost coverage sub-limit, which is endor­sed some­ti­mes to a D&O‑policy. As Sec. 101 II S. 2 VVG is an optio­nal pri­vi­le­ge, lia­bi­li­ty and D&O insu­rers make use of it very rare­ly.

The spe­cial con­di­ti­ons for Cri­mi­nal Defen­se Cost Coverage (CDCC) have been offe­red sin­ce 1980. They were appro­ved by the BAV in 1983. The CDCC are much more widespread than the VRB, sin­ce the­re is no com­pe­ti­ti­ve pro­duct to them. The CDCC are also refer­red to as „Exten­ded Cri­mi­nal Lia­bi­li­ty insuran­ce“ and are spe­cial con­di­ti­ons to §§ 1 – 20 of the Gene­ral Con­di­ti­ons for the Legal Pro­tec­tion insuran­ce (ARB). The CDCC, like every legal pro­tec­tion insuran­ce, is a pure cost insuran­ce. Like VRB, they offer only pas­si­ve or nega­ti­ve legal pro­tec­tion. The cri­mi­nal defen­se cost insu­rer shall bear the cos­ts ari­sing from the ope­ning of the inves­ti­ga­ti­ons. The­se inclu­de lawy­ers‘ fees, extra­ju­di­cial and judi­cial cos­ts for experts, court cos­ts, inci­den­tal cos­ts and tra­vel expen­ses.

The extent of the insuran­ce is a cri­ti­cal point for nego­tia­ti­on at the con­clu­si­on of the CDCC due to the high attor­ney fees that are often far abo­ve the fee-based remu­ne­ra­ti­on under the RVG (Lawy­er Renu­me­ra­ti­on Law).

Pen­al­ties and fines are not insu­red. As a mat­ter of princip­le, the reim­bur­se­ment of fines and pen­al­ties paid by the com­pa­ny is legal­ly per­mis­si­ble under civil law, but this is not to be regar­ded as a pro­per­ty dama­ge in respect of the D&O insuran­ce. Also, this insuran­ce does not pre­vent the exe­cu­ti­on of the impr­i­son­ment. „Sub­sti­tu­te con­fi­ne­ment is unfor­tu­n­a­te­ly not pos­si­ble!“. The CDCC are offe­red by the legal pro­tec­tion insu­rers.

The cri­mi­nal respon­si­bi­li­ty of mana­gers has been con­si­der­ab­ly tigh­te­ned sin­ce the 1970s. The incre­a­sing „cri­mi­na­liz­a­ti­on of manage­ment“ has main­ly occur­red in the fiel­ds of pro­duct and envi­ron­men­tal respon­si­bi­li­ty. Known lawsuits for the pro­duct lia­bi­li­ty of the pro­se­cu­tor are Zie­gen­haar-Pin­sel, Con­ter­gan, Mon­za Steel, Man­del­bie­nen­stich, Leder­spray, Holz­schutz­mit­tel und UB-Plas­ma. The “Leder­spray” court judgment of the Federal Court of Jus­ti­ce (BGH) of 6 July 1990 con­fir­med, for the first time, the princip­le of gene­ral respon­si­bi­li­ty and the all-aut­ho­ri­ty of the manage­ment, which had been estab­lis­hed in the case-law during the 1980s. The judgment is regar­ded as a „con­cep­tu­al quan­tum leap“ and „a mile­stone in the deve­lo­p­ment“ in the pro­duct lia­bi­li­ty of manage­ment. In 1970 some 1,000 envi­ron­men­tal dama­ges were found by the poli­ce. The figu­re rose to 3,500 in 1975. On 1.7.1980, envi­ron­men­tal cri­mi­nal law was inclu­ded in Sec­tions 324 – 330d in the Cri­mi­nal Code. In 1987 the num­ber was alrea­dy 18,000. In 1992 the poli­cy cri­mi­nal sta­tis­tics show­ed 25,882 envi­ron­men­tal delicts. The public pro­se­cu­tors are now cer­ti­fied accord­ing to the „top-down method“. The pre­ven­ti­ve effect of cri­mi­nal law beca­me appa­rent in the deba­te about a pro­per orga­ni­sa­tio­nal struc­tu­re for com­pa­nies. In the mean­ti­me one is accus­to­med to the dai­ly media repor­ting on inves­ti­ga­ti­ons against employees and mem­bers of cor­po­ra­te bodies of com­pa­nies.

The CDCC and the civil law defen­se cost poli­ci­es as well as the D&O poli­ci­es are insuran­ces for third par­ties. Pre­mi­um deb­tor is the poli­cy­hol­der, ie the com­pa­ny for which the bene­fi­cia­ries are acti­ve. In con­trast to D&O insuran­ce, employees are insu­red at all levels by a CDCC. The poli­cy­hol­der usual­ly has an express­ly agreed right of objec­tion gran­ted under the cri­mi­nal law defen­se cost poli­cy. This may con­tra­dict the legal pro­tec­tion demand of the insu­red per­son. Howe­ver, if this employee is suspec­ted of deli­ber­ate­ly causing a dama­ge to the poli­cy­hol­der or a co-insu­red sub­si­dia­ry, the poli­cy­hol­der will do so on a regu­lar basis. Becau­se the insu­red per­son is not in pos­ses­si­on of the insuran­ce poli­cy, the insu­red per­son can­not sue the cri­mi­nal defen­se cost insu­rer for per­for­mance pur­suant to § 44 para. 2 VVG (75 para. 2 VVG a.F.).

The CDCC is offe­red by legal expen­se insu­rers. The limits pro­vi­ded are usual­ly low. The size of the Ger­man CDCC mar­ket is sup­po­sed to be bet­ween 50 – 100 mil­li­on €. Unli­ke D&O insuran­ce an CDCC is no cata­stro­phe cover. It covers a fre­quen­cy risk for defen­se cos­ts. Legal cos­ts abo­ve the limit of € 500,000 are rare. Howe­ver, occa­sio­nal­ly the­re are defen­se cos­ts abo­ve 1 mil­li­on €. Today, some pro­vi­ders are fin­ding that the incre­a­sed risk and the impro­ved con­di­ti­ons are no lon­ger in line with the fal­ling pre­mi­ums. Sup­pliers with­draw from this small line of insuran­ce. Others are try­ing to clean up their port­fo­li­os and rest­ruc­tu­re them.

The USA ter­ri­to­ry and the US law are exclu­ded from the legal cost pro­tec­tion insuran­ce. The­re may be Pro­duct arrest cases or SEC inves­ti­ga­ti­ons that can quick­ly trig­ger cri­mi­nal offen­ses that exceed the limit of € 1 mil­li­on. In con­trast to D&O insuran­ce, howe­ver, it is very sel­dom important for the media whe­ther the­re is a CDCC and whe­ther this ser­vice has been pro­vi­ded. With regards to an CDCC, the com­pa­ny is pri­ma­ri­ly con­cer­ned with the safe­guar­ding of the pro­ce­du­re, the tran­si­ti­on from lia­bi­li­ty to cover, the know-how of the legal pro­tec­tion insu­rer and its con­ta­cts with spe­cia­li­zed lawy­ers and experts. By trans­fer­ring the decisi­on regar­ding the cost pay­ments to the insu­rers befo­re any inves­ti­ga­ti­on starts, the com­pa­ny avoids inter­nal and exter­nal cri­ti­cism. The legal pro­tec­tion insu­rers also pro­vi­de trai­ning and gui­d­ance on „What to do when the pro­se­cu­tor comes?“. If final­ly cri­mi­nal intent beco­mes non-appeal­ab­le, the CDCC beco­mes inva­lid in retro­spec­ti­ve.

Two Tower D&O

The “pri­so­ner dilem­ma” is only men­tio­ned as a catch­word. The joint defen­se of the exe­cu­ti­ve board and the super­vi­so­ry board faci­li­ta­tes the defen­se. If the com­mu­ni­ty is enfor­ced by ina­de­qua­te insuran­ce sums, it is still a com­mo­na­li­ty. If a sepa­ra­te defen­se is necessa­ry by means of sepa­ra­te poli­ci­es, third par­ties pro­fit from this dis­pu­te. The­se are the lawy­ers and abo­ve all the inju­red par­ties. The pre­sen­ta­ti­on and the bur­den of pro­of is con­si­der­ab­ly faci­li­ta­ted by any dis­agree­ments bet­ween the super­vi­so­ry board and the exe­cu­ti­ve board. The joint defen­se sys­tem under a sin­gle com­pa­ny poli­cy is end­an­ge­red and wea­ke­ned by sepa­ra­te board poli­ci­es and poten­ti­al­ly cau­ses the oppo­si­te out­co­me than that which was anti­ci­pa­ted.

Con­clu­si­on: Bet­ter one high tower only than two smal­ler and lea­ning towers.We restrict our­sel­ves to a few key­words and indi­ca­ti­ons that speak against this pro­duct:

Insuf­fi­ci­ent insuran­ce sums can­not be pre­ven­ted by clo­sing two poli­ci­es ins­tead of one. This incre­a­ses the cos­ts, but not the insuran­ce sums.

30% of all court cases pen­ding against mem­bers of the exe­cu­ti­ve board are also direc­ted against the super­vi­so­ry board. In addi­ti­on to that the­re are the threa­tened dis­pu­tes and regres­ses posed by the exe­cu­ti­ve board against the super­vi­so­ry board out­side of court.

The con­sump­ti­on of the D&O insuran­ce sum is often pre­ce­ded by a claim. The super­vi­so­ry board is invol­ved in this claim.

If the D&O insuran­ce sum is used up by a loss which the exe­cu­ti­ve board alo­ne is respon­si­ble for, and the los­ses exceed the insuran­ce sum, is a sepa­ra­te super­vi­so­ry board poli­cy with its own insuran­ce sum real­ly an addi­tio­nal pro­tec­tion for the super­vi­so­ry board? Or is it ano­t­her deep pocket?

The Annu­al Gene­ral Mee­ting deci­des on the con­clu­si­on of the super­vi­so­ry board poli­cy. Which super­vi­so­ry board would want to draw atten­ti­on to its­elf by asking for some­thing which no other super­vi­so­ry board has: a dou­ble insuran­ce for the super­vi­so­ry board only in addi­ti­on to the com­pa­ny D&O insuran­ce for all D&O´s inclu­ding the super­vi­so­ry board.

Nobo­dy can cal­cu­la­te the right amount of the insuran­ce sum for a com­pa­ny. Hence, an inso­lub­le task is not sol­ved by doing it twice, once for the gene­ral D&O insuran­ce and a second time for a sepa­ra­te super­vi­so­ry board poli­cy.

If the dou­ble insuran­ce is to be avoided, the cover of the super­vi­so­ry boards under the com­pa­ny poli­cy must be lifted and trans­fer­red com­ple­te­ly into a sepa­ra­te super­vi­so­ry board D&O. This is pos­si­ble only with the same insu­rers in both D&O poli­ci­es but very dif­fi­cult for mul­ti­ple insu­rers. Howe­ver, this can be a flaw­less and simp­le pro­cess, if no sepa­ra­te super­vi­so­ry board poli­cy is con­clu­ded at all.We will glad­ly con­vin­ce you that this cover is not recom­men­ded. A restraint at the end is alrea­dy necessa­ry, becau­se this poli­cy has only been dis­cus­sed for a short time and it is not popu­lar among the well-net­wor­ked cor­po­ra­te cus­to­mers. Aca­de­mi­cal­ly, it is cer­tain­ly exci­ting to dis­cuss the two-tie­red sys­tem of the super­vi­so­ry board and the exe­cu­ti­ve board, and it seems very cun­ning to reco­gni­ze the dif­fe­rence to the one tier board sys­tem in the US. The­re may have been a case whe­re a super­vi­so­ry board did not have an insuran­ce sum any­mo­re after the board had alrea­dy used up the ent­i­re D&O insuran­ce sum. But a swal­low does not make a sum­mer. A sin­gle case whe­re a super­vi­so­ry board lost the con­trol over the liti­ga­ti­on against the mana­ging board is no good rea­son to recom­mend sepa­ra­te super­vi­so­ry board D&O‑Policies for all Super­vi­so­ry boards.

 

Errors & Omissions insurance (E&O)

In con­trast the PI / E&O / VH cover for com­pa­nies deal with the finan­cial los­ses cau­sed to assets of third par­ties by their own employees, hence, for which the com­pa­ny is liable. The­re­fo­re, ser­vice pro­vi­ders who con­duct their busi­ness in a legal enti­ty should com­ple­te both the VH and the D&O insuran­ce. The clas­sic examp­le for this are the banks. Par­ti­al­ly, the­re are also com­bi­na­ti­ons of E&O and D&O for cer­tain tar­get groups, e.g. Pri­va­te Equi­ty or Ven­ture Capi­tal.

The deli­mi­ta­ti­on of E&O and D&O insuran­ce is dif­fi­cult if the wrong­ful act occur­red during a cus­to­mer ser­vice per­for­med by a direc­tor or offi­cer.

D&O is fal­se­ly and „sim­ply for­mu­la­ted“ a pro­fes­sio­nal lia­bi­li­ty insuran­ce. The pro­fes­si­on of a board mem­ber does, howe­ver, not exist. The risk fol­lows from the repre­sen­ta­ti­on func­tion for the legal per­son. In the case of legal, tax, finan­cial and eco­no­mic advi­so­ry acti­vi­ties, the­re are job tit­les. The­se ser­vices are exclu­ded in the field of lia­bi­li­ty D&O insuran­ce by a pro­fes­sio­nal ser­vices exclu­si­on. Ins­tead it only covers the acti­vi­ties of the mem­bers of the exe­cu­ti­ve body in their func­tion as a body and not any acti­vi­ties of the insu­red per­sons.

In the Anglo-Ame­ri­can coun­tries, the VH cover is often allo­ca­ted to the Finan­cial Lines. In Ger­ma­ny this would pro­bab­ly have been the case too, if at the begin­ning of the 1970s, the VH insu­rers would not have deci­ded to lea­ve this busi­ness to the legal insuran­ce pro­vi­ders. In the 70s the Ger­man E&O insu­rers deci­ded not to enter into the D&O busi­ness. The D&O‑gap was fil­led then by the legal expen­se cost insu­rers until the midd­le of the 90s. We refer to the VH / PI / E&O covers as Finan­cial Lines. Orga­niz­a­tio­nal­ly, they are assi­gned to the lia­bi­li­ty area in Ger­ma­ny or form a sepa­ra­te unit for lar­ger hol­dings.

The E&O covers are the clas­sic pro­fes­sio­nal lia­bi­li­ty insuran­ces. They are also avail­ab­le for legal enti­ties. The Gene­ral Terms and Con­di­ti­ons of the finan­cial loss poli­ci­es are a lia­bi­li­ty insuran­ce, just like the D&O insuran­ce. Other expres­si­ons for the Ver­mö­gens­scha­den-Haft­pflicht-Ver­si­che­rung are Errors and Omis­si­ons Lia­bi­li­ty insuran­ce (E&O) or Pro­fes­sio­nal Indem­ni­ty (PI).

The most com­mon­ly known pro­fes­sio­nal indem­ni­ty insuran­ces are tho­se for lawy­ers, tax con­sul­tants and char­te­red accoun­t­ants. Howe­ver, other ser­vice pro­vi­ders and lines of busi­ness may also insu­re the risk of beco­m­ing liable to third par­ties for finan­cial loss in their day-to-day busi­ness, under a pro­fes­sio­nal lia­bi­li­ty insuran­ce or E&O. If the risk beco­mes more com­plex as e.g. con­cerns finan­cial ser­vice pro­vi­ders or the IT-indus­try the demand for pro­fes­sio­nal advice incre­a­ses accord­in­gly.

Financial Loss Defense Cost Cover for D&O´s

The finan­cial loss defen­se cost cover for D&O´s is simi­lar to the D&O insuran­ce, with the main dif­fe­rence that only the legal cos­ts and not the indem­ni­ty pay­ments are insu­red. Due to this limi­ted ran­ge of ser­vices, D&O insuran­ce has lar­ge­ly pushed it out. It is now inte­res­ting for non-insura­ble D&O risks or to sup­ple­ment gaps in the D&O insuran­ce, e.g. by exclu­si­ons or deduc­ti­bles.

Crime insurance, Fidelity insurance (Bankers Blanket Bond BBB)

This risk is eva­lua­ted annu­al­ly by the foren­sics depart­ments of the lar­ge Audit firms. We recom­mend regar­ding the expo­sure in Ger­ma­ny:

http://www.pwc.de/de/risiko-management/assets/studie-wirtschaftskriminalitaet-2016.pdf
https://home.kpmg.com/de/de/home/themen/2015/01/forensic.html
https://www.kpmg.com/DE/de/Documents/Wikri-Studie_2014_sec.pdf
https://www.kpmg.com/DE/de/Documents/thesenpapier-wirtschaftskriminalitaet.pdf

Pre­ven­ti­on and miti­ga­ti­on is clo­se­ly lin­ked to the terms com­pli­an­ce and IT secu­ri­ty. The sta­tis­tics cover not only the risks which can be the sub­ject of a com­mer­cial crime insuran­ce. The sobe­r­ing result of all the­se inves­ti­ga­ti­ons is that the main risks faced by busi­nes­ses are the thre­ats by eco­no­mic cri­mes from wit­hin and not from out­side the com­pa­ny. „Insi­de“ means that the dama­ge is cau­sed by peop­le who have been fami­li­ar with the com­pa­ny, that is, its own employees, becau­se they know the weak spots. Their ima­gi­na­ti­on in the use of the­se secu­ri­ty gaps can­not be oppo­sed by insu­pera­ble obsta­cles.

Crime insuran­ce covers finan­cial loss cau­sed by inten­tio­nal tor­tious actions of employees, in par­ti­cu­lar embezzle­ment, theft, fraud, for­ge­ry, com­pu­ter fraud as well as other infi­de­li­ties. To some extend los­ses ari­sing from com­pu­ter vio­la­ti­on by hackers are cove­r­ed as well. Basi­cal­ly all employees are inclu­ded under the scope of coverage: tem­pora­ry staff, interns as well as mana­ging direc­tors, mem­bers of the exe­cu­ti­ve board of direc­tors, part-time employees and all other indi­vi­du­als per­forming employee-like duties on behalf of the insu­red orga­niz­a­ti­on, e.g. security‑, main­ten­an­ce- and clea­ning staff.

The term “infi­de­li­ty” descri­bes the poli­cy only vague­ly. The word “crime” fits a litt­le bit bet­ter. Hence the ques­ti­on is: whe­re do the big breaches of faith occur? Sim­ply the­re, whe­re a lot of money is ent­rus­ted, i.e. banks and nota­ries.

Refe­rence: Publi­ka­ti­on VSV PDF (200KB)

Warranties and Indemnities insurance (W&I), Representations & Warranties insurance

Typi­cal­ly a War­ran­ties and Indem­nities insuran­ce affords coverage in case of com­pa­ny acqui­si­ti­ons or sales for the con­trac­tu­al gua­ran­tee bond and the lia­bi­li­ty expo­sure of the war­ran­tor deri­ving from the sales & purcha­se agree­ment. Addi­tio­nal­ly coverage can be exten­ded to first par­ty and third par­ty loss inclu­ding defen­se cos­ts. In the past few years such coverings have been in high demand. The­re are poli­ci­es on the buy­er and on the sel­ler side. A lot of invest­ment ban­kers are in the risk assess­ment area. The sug­ges­ti­on to con­clu­de such covers often comes from the law firms that pre­pa­re the purcha­se con­tract. The know-how and the insuran­ce capa­ci­ties were form­er­ly sup­plied by the Eng­lish mar­ket. The num­ber of insu­rers in Ger­ma­ny is now incre­a­sing. The busi­ness is very vola­ti­le, but fits into a time of invest­ment plight.

The inter­ac­tions with the D&O con­tract are con­si­derable. Rela­tively lar­ge M & A‑actions are a noti­fia­ble incre­a­se in expo­sure that has to be repor­ted to the D&O insu­rers. Then again the con­tract nego­tia­ti­ons are often strict­ly con­fi­den­ti­al. The Finan­cial Lines are often acti­va­ted rather late and are under con­si­derable time pres­su­re.

It remains to be seen whe­ther this insuran­ce can be sus­tainab­ly pro­fi­ta­ble. In the case of pro­vi­si­ons for envi­ron­men­tal lia­bi­li­ty, tax assess­ments or liti­ga­ti­on risks, which can­not be asses­sed, the insuran­ce is more simi­lar to a bet than a nor­mal insuran­ce.

An incre­a­se in post‑M & A liti­ga­ti­on, as it is the case in the US, has not yet been estab­lis­hed des­pi­te the sale of many com­pa­nies and an upward move in the W & I poli­ci­es during the past few years. W & I insuran­ce is par­ti­cu­lar­ly app­li­ca­ble to medi­um-sized tran­sac­tions in order to safe­guard exemp­ti­on clau­ses in the area of taxes and con­ta­mi­na­ti­on. Also in this finan­cial line, the poten­ti­al for con­tro­ver­sy is con­si­derable.