D&O Insurance

Directors and officers liability insurance is professional insurance as held by accountants, auditors, real estate brokers, air controllers, doctors, etc. It is quite common in foreign practice, as it involves the management of company risks with the aim to increase the security of company assets.

Governing and supervisory bodies are insured within the scope of D&O liability policies, frequently along with other low management executives at a company who take risky decisions. Such policies always include a series of exclusions, such illegal actions, negligence and decision-making by governing and supervisory bodies without due diligence. Hence, management and supervisory boards remain accountable with all their property despite the insurance and have to prove the diligence of their actions in tort actions.

Such liability insurance for governing and supervisory bodies protect company interests and not those of an individual. If a company has taken out such a policy, it may pursue the interest of damage reimbursement to the company. The insurance company can later on enforce recourse claims against such persons. The amount of damage is recovered from the insurance company (through court or out-of-court settlement) for the account of the company in an amount exceeding the property of the sued members of the bodies. Naturally, various other products are available to secure their property, which usually include much lower coverage that suffices only for the payment of legal costs and cannot cover damages worth several millions to the company from the policies. A lack of knowledge and understanding of such insurance is also revealed in tax treatment, since insured persons are recognised as those receiving benefits from it, which is why they pay the benefit. They can never have any benefit from it, but the company can.

Tax treatment

In relation to the tax treatment of premiums for the insurance of liability of management and supervisory board members, the Tax Administration of the Republic of Slovenia and the Ministry of Finance issued two explanations. In May 2011, a new explanation was published by the Tax Administration which, however, brought nothing new, since premium payments made by a company for such insurance products are still considered in terms of tax as a benefit. After the amendment of Article 263 of the Companies Act, the tax treatment for directors’ and officers’ liability insurance remains unchanged (28 January 2016):
*only in Slovene language

 

NEW

Companies Act (Official Gazette of the Republic of Slovenia, No. 55/15) - Article 263(2): If a company concludes an insurance contract to insure the members of its governing and supervisory bodies against risks deriving from the pursuit of their function at the company, the deductible must be set at least in the amount of 10% of damages, but no more than 1.5 times their fixed annual remuneration.

Research and Studies:

Piškotki

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