How D&O Insurance Protects Managers from Personal Liability

Today’s business leaders are facing unprecedented pressure and expectations – and increasingly bear personal consequences for the decisions of their organizations. In an era when leaders make decisions that shape the future, their exposure to risks has never been greater.

Let us recall the ‘Coldplay scandal’ when the CEO of a technology company was caught in inappropriate behavior. The video ended up on social media, and the reputational damage was so severe that the CEO had to resign. This case illustrates how quickly and unexpectedly leaders can be exposed to backlash – and how protection through D&O insurance is crucial.

Iva Rogović Lekić, CEO of GrECo Specialty GmbH based in Vienna, a company owned by the GrECo Group, which specializes exclusively in insurance and reinsurance for specific industries such as energy, construction, transport and logistics, aviation, and financial institutions, speaks about the risks leaders face in an increasingly challenging world.

In her position, she is responsible for business development in 21 countries in Central and Southeastern Europe, including Croatia. Among other things, she is responsible for managing a premium of one billion euros, revenue exceeding 65 million euros, and a team of 400 people.

GrECo Group is a leading corporate risk consultant and broker in insurance and reinsurance in Central and Southeastern Europe, providing clients with tailored solutions in risk management and insurance. GrECo Group, headquartered in Vienna, employs over 1,400 people in 69 offices across 21 countries. With clients in 150 countries worldwide, GrECo is celebrating its hundredth anniversary this year.

There is increasing discussion about the personal responsibility of leaders. Why is this topic so relevant today?

– Today’s leaders make decisions that shape the future – but with that comes great responsibility. Every decision, every statement, every omission can have personal consequences. We see an increase in lawsuits against management, an increasingly stringent regulatory framework, and media that react quickly. Leaders are under scrutiny, and D&O insurance is becoming an essential protection tool.

Can you explain what exactly D&O insurance covers?

– In very brief terms, Directors and Officers Liability Insurance (D&O) covers financial losses of managers and supervisory bodies arising from claims by third parties (such as shareholders, creditors, or clients) who hold them responsible for their decisions or omissions in performing managerial duties. It includes defense costs in out-of-court and court proceedings, damages, and even reputational harm. However, it is important that the policy is properly contracted – as there are exceptions, such as intentional criminal acts.

What are the most common misconceptions leaders have about D&O insurance?

– There are many, and we often encounter incorrect perceptions of managers’ liability insurance in the market. Many still think that ‘it won’t happen to them’, that the company will cover everything (which, of course, depends on their contracts), that they are already well insured. However, for example, before and especially after an IPO, risks change, and managerial liability increases further. Instead of familiar shareholders, managers face institutional investors who do not hesitate to file lawsuits if they believe they are losing value. A public company is subject to stricter rules, and an old policy from a private company certainly does not cover new challenges. Also, many still believe that this insurance is too expensive – but the cost of the policy is incomparably lower than potential million-euro damages.

You mentioned IPO. What are the specific risks for leaders after going public?

– An IPO is a significant step, but also a moment when management’s liability reaches a new level. The company must be transparent, financial statements must be accurate, and every statement to investors must be credible. If it turns out that the information was inaccurate, shareholders can sue the management. Instead of a personal conversation, the first contact may be a legal letter.

For example, the prospectus is strictly regulated. If you claim in it that you will achieve 10% growth, and you achieve 4%, investors can sue for misleading statements. Although the error may be from a lawyer or accountant, you are the first to be targeted. That is why an additional POSI policy – Public Offering of Securities Insurance – is recommended, which covers risks related to IPO documentation for up to 6 years after issuance. The POSI policy offers tailored coverage for public offerings, including initial public offerings and issues of debt or equity rights. It specifically addresses the risks associated with the offering faced not only by directors but also by the company and all shareholders who have control or sell.

The most important thing is that the POSI policy acts to shield exposure to the transaction, leaving the D&O policy to respond to the risks of ‘ordinary business’ faced by directors.

How to properly contract a D&O policy?

– First, an adequate coverage limit should be determined – in accordance with the size of the company and the industry. Then, it is important to include an extended reporting period (so-called run-off), as claims can arise even after the term has expired. The exceptions in the policy should be carefully reviewed and regularly updated. For example, some companies refresh their management after an IPO – such changes require policy adjustments.

Can you share some practical examples?

– Certainly. We had a case where a company did not have a D&O policy, and after bankruptcy, creditors sued the board members personally. In another case, the coverage limit was too low – the investor’s lawsuit far exceeded the policy. In Croatia, such cases are not common, but when they occur, the amounts are significant. Prevention is key.

What is the legal framework situation in Croatia?

– The Companies Act clearly stipulates the responsibility of management. Directors must conduct business with the care of a good businessman. If they fail to do so, they are personally liable. The Bankruptcy Act also stipulates obligations – if bankruptcy is not initiated in time, directors may be liable to creditors.

What about supervisory boards?

– The primary task of the supervisory board is to oversee the company’s operations, appoint and revoke the appointment of board members, and represent the company towards them. The D&O policy should also cover them. We had a case where the entire management structure was covered by a lawsuit – including members of the Supervisory Board. The question when a lawsuit or some other compensation claim occurs is whether they are truly ‘responsible’ or ‘guilty’. D&O will cover the costs of lawyers (and all costs if a court proceeding occurs) to establish any liability, and this is the moment when the policy is most important – because everyone needs adequate defense against both founded and especially unfounded compensation claims.

How can leaders proactively plan for protection?

– First, they need to raise awareness of the risks, ask themselves if they have adequate protection? Is our D&O policy tailored to actual risks? If you intend to go public, you should ask if you are ready for an IPO? If you are going public, do you intend to trade? If you are unsure, it is time to talk to your broker. Because when a crisis hits, it will be too late for repairs – it is essential to protect yourself in time. A properly contracted D&O policy provides security, and timely planning allows managers and directors to focus on their vision with less anxiety. We can say that today no one is untouchable. In an era when reputation can be destroyed with a single click, and a lawsuit can be initiated due to a single statement, D&O insurance is not a luxury – but a necessity. Leaders, managers, and supervisory board members must recognize their exposure and act proactively.