Today’s D&O coverage concept embodies a uniform policy for all board members and executives of a company. This concept ties in with the monistic system of the US (One-Tier Board System). However, the dualistic two-tier board system prevailing in Germany is hardly taken into account in this regard. Here there is a separation of management and supervisory bodies in the form of executive board / management and supervisory board / administrative board / advisory board. If the controlling body is held liable due to a lack of oversight on the part of the executive board, considerable gaps in coverage can occur under conventional D&O cover concepts. In extreme cases, the members of the supervisory body are not covered under the D&O corporate policy. Consequently more and more, special D&O insurance protection for supervisory bodies is necessary for good corporate governance and due to stricter compliance requirements.
Increased requirements of the supervisory board:
- Stricter case law and increasingly critical owners/investors
- Increased statutory liability and more rigorous requirements for the Supervisory Board member himself
- Increased standard of care for specialised knowledge and in times of crisis
- General standard § 111 paragraph 1 of the Stock Corporation Act (AktG): “The supervisory board must supervise management” (preventive supervision and, if necessary, repressive supervision)
MRH Trowe Supervisory Board Protect Policy
The Supervisory Board Protect Policy is an innovative insurance concept developed to promote good corporate governance. It protects members of the supervisory body exclusively, within the framework of an “excess of loss solution”. The members of the supervisory body always remain insured under the primary D&O corporate policy. Insurance cover via the excess of loss solution “Supervisory Board Protect Policy” is triggered by explicitly defined exceptional events. For an insured event, the scope of cover corresponds to that of the D&O corporate policy (“following form”). However, the supervisory body then has access to an exclusive sum insured by a second, unencumbered D&O insurer. To avoid conflicts of interest, the D&O corporate policy and supervisory board protect policy must be taken out from different insurers.
Highlights of the Supervisory Board Protect Policy:
- Additional coverage only for the supervisory bodies if the coverage of the D&O corporate policy has been used up
- In the case of third party notice, through the management to the supervisory board member, the interests of the supervisory board member can be optimally enforced
- Insurance cover also includes the costs of a PR consultant for the purpose of protecting reputation
- The insurer of the supervisory body is independent of the insurer of the D&O corporate policy
- There is no reason to hope that insurers will comply with “Chinese walls”
- Insurance cover is also granted if the D&O corporate policy is challenged retroactively due to fraudulent misrepresentation on the part of management when the D&O contract is entered into – or if a special representative has been appointed in accordance with § 147 paragraph 2 of the Stock Corporation Act (AktG).
Trigger of the Supervisory Board Protect Policy:
- Third party notice on the part of the management board to the supervisory board member
- Contestation of the D&O insurance
- Upstream depletion of coverage of the D&O corporate policy on the part of management
- Special representative as stipulated in § 147 paragraph 2 of the Stock Corporation Act (AktG)