What is D&O insurance?
D&O insurance (from Directors and Officers) is a civil liability insurance that protects the personal assets of directors and officers against claims arising from their management decisions. It is arranged by the company, but the insured parties are the natural persons holding office.
Its rationale lies in the law. Articles 236 and 241 of the Spanish Companies Act (Ley de Sociedades de Capital) establish that directors are liable towards the company, towards the shareholders and towards the creditors for the harm they cause through acts contrary to the law, to the articles of association or to the duties of their office, where there is wilful misconduct or negligence. That liability reaches the director's personal assets, not only those of the company.
In other words: whoever signs decisions at the head of a company assumes an economic risk of their own. D&O insurance —also known as directors' and officers' liability cover— transfers that risk to an insurer, within the limits and terms of each policy.
What does D&O insurance cover and exclude?
In general terms, the policy covers two broad blocks: the legal defence costs (solicitors, experts, court agents) and the compensation the director must pay by reason of their civil liability. Cover for defence costs is usually the most valued, because it is triggered from the start of the proceedings, before any judgment exists.
Below is an indicative summary. The specific scope always depends on the terms of each policy and insurer.
| Usually covers | Usually excludes |
|---|---|
| Legal defence costs against claims | Acts committed with wilful misconduct or bad faith (statutory exclusion) |
| Compensation for the civil liability of the office | Administrative and tax fines and penalties |
| Claims by shareholders, third parties and creditors | Facts or circumstances known before arranging cover |
| Claims by the company itself (derivative action) | Claims between insurers within the same group |
| Costs of bonds, image restitution and assistance | Property or bodily damage (except employment practices) |
| De facto directors and, depending on the policy, subsidiaries | War, terrorism and expressly excluded risks |
Two important nuances. First, wilful misconduct is excluded by law, but most policies advance defence costs until a final judgment declares the conduct to be wilful. Second, the attribution of tax liability and tax penalties are usually left out or heavily limited in the Spanish market; it is one of the points where the wording varies most.
Reviewing exclusions, sub-limits and definitions (what is meant by "claim" or by "insured") makes the difference between a policy that responds and one that does not. Request a review of your programme with no obligation.
Who needs D&O insurance?
There is no single profile. Exposure arises whenever a person takes management decisions with effects on shareholders, employees, creditors or the authorities. In practice, it is worth considering especially in:
- Companies with a board of directors, where several people share responsibility for collegiate decisions.
- SMEs with joint or several directors, who are liable with their personal assets even if the company is small.
- Start-ups with investors or funding rounds, where the shareholders' agreement and venture capital expectations raise the risk of claims between parties.
- Subsidiaries of multinationals, whose local director remains exposed to Spanish legislation even if decisions are taken abroad; the local policy should be coordinated with the group's international programme.
- Officers with powers of attorney (financial management, general management) who, without being board members, take decisions with an impact on assets.
It is worth remembering that in Spain D&O insurance is voluntary: no rule requires you to arrange it. It is a risk management decision, not a legal obligation. You can find out how this line fits within a broader corporate programme in our areas of cover.
Common claims against directors and officers
The usefulness of D&O insurance is best understood by looking at where real claims come from. These are the most frequent routes:
- Insolvency liability. In insolvency proceedings, the director may be exposed to a finding of culpability and to covering the asset shortfall.
- Employment claims. Management actions with an impact on the workforce, employment practices or joint and several liability in certain cases.
- Tax matters. Attribution of tax liability to the director; bear in mind that penalties are usually excluded from the policy.
- Shareholders and third parties. The individual action under article 241 of the Spanish Companies Act allows a shareholder or a third party to claim directly for the harm suffered to their assets.
- The company itself. Through the derivative liability action, the company can claim from its director for the harm caused to corporate interests.
A relevant point for risk management: culpability is presumed, unless proven otherwise, when the act is contrary to the law or to the articles of association (article 236 of the Spanish Companies Act). That reversal of the burden of proof makes the defence more expensive and drawn out, which is precisely what the policy is designed to assume.
Each sector and each corporate structure presents a different exposure. We analyse your portfolio and advise you on the cover your case requires.
What does the price of D&O insurance depend on?
It is not possible to quote a premium figure rigorously without analysing the specific risk: each programme is rated individually. We can, however, anticipate the factors that insurers assess to set the price and the terms:
- Turnover and balance-sheet size of the company.
- Sector of activity and its level of regulatory or litigation exposure.
- Corporate structure: existence of a board, subsidiaries, international presence.
- Prior claims experience and history of claims.
- Financial situation: leverage, cash position, signs of financial distress.
- Presence of investors or listing, which multiplies exposure.
- Limit of indemnity and excess chosen.
That is why two companies of similar turnover can receive very different offers. The quality of the information submitted to the market —the so-called underwriting— has a direct influence on the price and on the scope of the cover obtained.
The role of an independent brokerage in arranging D&O
Here lies the difference between buying a product and designing a protection. As an independent insurance brokerage, New Brokers does not represent any insurer: it works on the client's mandate and with access to the whole market, including London and Lloyd's. This translates into three concrete contributions:
- Analysis of the real exposure of the management body, before requesting a price.
- Technical comparison of wordings —not just of premium— across several insurers: definitions, exclusions, sub-limits and temporal scope.
- Defence at the time of a claim: support when the claim arrives, which is the moment the policy is put to the test.
In a class as sensitive to the detail of the wording as D&O, this qualified intermediation avoids surprises when they matter most. You can learn more about our model in independent brokerage.
New Brokers is an insurance brokerage entered in the register of the DGSFP under reference J0140. This information is indicative and does not constitute binding advice: each case is assessed individually and all cover is subject to the terms of the corresponding policy and insurer.
Are your board or your management team adequately protected? Request a review of your D&O programme and we will advise you with no obligation.
Frequently asked questions
Is D&O insurance compulsory in Spain?
No. In Spain, D&O insurance is voluntary: no rule requires you to arrange it. However, given that directors are liable with their personal assets towards the company, the shareholders and third parties (articles 236 and 241 of the Spanish Companies Act, Ley de Sociedades de Capital), it is a common cover in companies with a board of directors, investors or regulatory exposure.
Does D&O insurance cover fines and penalties?
As a general rule, no. Administrative and tax penalties, as well as the attribution of tax liability, are usually excluded or heavily limited in the policies marketed in Spain. The scope depends on the terms of each policy and insurer, so the wording should be reviewed in detail before arranging cover.
Does D&O cover acts committed with wilful misconduct or fraud?
No. Wilful misconduct (deceit, fraud or the deliberate intention to cause harm) is excluded by law. Nevertheless, most policies do advance legal defence costs until a final judgment declares the conduct to be wilful, at which point reimbursement becomes due. The detail depends on the terms of each policy.
Who pays the premium and who is insured under a D&O policy?
Normally the company (policyholder) arranges and pays for the policy, and the insured parties are the natural persons acting as directors, board members and officers, present and, depending on the wording, past and future. It also usually extends to de facto directors and to subsidiaries, subject to the terms of each policy.