As the head of a business you are not normally liable for losses with your own private assets. But what if you were?
In principle, the shareholders bear the economic risk of a business. But directors and officers can be held liable if they are purportedly or actually in breach of their duties. Corporate liability insurance covers these risks.
More and more often, insurance of this kind is provingessential to enable entrepreneurs to appoint the best people to fill vacant managerial positions. Here are some true stories:
Example 1: Because of an over-optimistic profit forecast, imprudent premature investments are made on a grand scale. Hoped for profits fail to materialise and the company suffers a substantial loss of assets.
Example 2: Although the financial situation of the company and the general economic situation are not appropriate, a factory takes out further loans from a bank. This results in excessive debts and ultimately in bankruptcy.
Example 3: An employee causes damage to the corporate assets because he was assigned tasks by the Board of Directors which he should not have been allowed to take on by law.
In all three examples, the persons in charge were in breach of the duty of diligence imposed upon them. Thereafter creditors, shareholders or the bankruptcy receivership made civil liability claims against the members of the Board of Directors and/or Management Committee.
Protection for your private assets – Corporate liability insurance covers the following risks:
• Statutory civil liability of the official entities for damage to assets caused by them through actions and/or omissions in breach of their duties.
• Payment of defence costs.
• Extension of the cover to the policy holder and his insured subsidiary companies if they have indemnified an official entity (company reimbursement), to the extent that this is permitted by law.
Corporate liability insurance provides customised cover for the private assets of the senior executives of your business, i.e. members of the Board of Directors and all persons entrusted with management responsibilities.