Partial Criminal Legal Protection in D&O insurance – adequate replacement or deceptive security?
D&O insurance protects managers in the event of a claim due to financial loss and claims relating to civil law. However, liability proceedings are often preceded by criminal proceedings, the findings of which can influence the decision in civil proceedings. The most recent prominent example is the Wirecard case before the Regional Court of Munich I, in which the criminal charges against the Chairman of the Board of Directors of Braun and two of his managers are currently being worked through. The findings made there are likely to be significant both for the insolvency administrator’s claim for damages as well as for the determination of possible knowledge of the breach of duty and the duty of subrogation of the D&O insurers incorporated in the cover.
Against this background, it is not surprising that, in the wake of a soft market cycle, the essentially different in nature Partial Criminal Legal Protection has found its way into the D&O wording. This is also increasingly popular; according to the experience of the Finlex claims department, almost one third of the reported claims are attributable to Partial Criminal Legal Protection.
As the designation as layer cover suggests, Partial Criminal Legal Protection does not cover any costs incurred in connection with criminal investigations and proceedings. A reference to an insured breach of duty is consistently required in the D&O wording. Mostly, the occurrence of the insured event must also be sufficiently probable or at least possible so that defence costs can be assumed. Discussions with the insurer may occur here since the criminal act does not necessarily have to lead to financial loss for the company. In contrast, only a connection with the activity for the policyholder or the co-insured company is required for Specialist Criminal Protection Insurance.
There are also considerable differences between the cover concepts within the group of insured persons. Partial Criminal Legal Protection is aimed at the insured persons of D&O. In addition to the corporate bodies, these are only a few employees in exposed positions, such as senior executives or compliance officers. Within the framework of Specialist Criminal Protection Insurance, all natural persons performing their activity for the policyholder are among the insured persons, such that, for example, freelance employees also benefit from the cover. Above all, however, the policyholder and its subsidiaries are also covered by Specialist Criminal Protection Insurance, e.g. if there is an investigation due to the suspicion of cartel formation or facts relevant to the environment.
In most cases, Partial Criminal Legal Protection is provided with a small sublimit. This is intended to ensure that even if the component is used, there is a sufficient sum insured for the core task of D&O – defence against unfounded and satisfaction of justified pecuniary damage liability claims – especially since the sum insured is only available once per insurance period. On the other hand, the common concepts in Specialist Criminal Protection Insurance for companies either provide for a ceiling of double the base amount of the insured sum or waive restriction of the ceiling entirely.
It is advantageous for the persons benefiting from Partial Criminal Legal Protection that the D&O insurance does not recognise any consent requirement or right to object on the part of the policyholder with regard to the granting of the insurance cover. This is different to Specialist Criminal Protection Insurance for companies. There, the policyholder must agree to cover for former or freelance employees and must to some extent object to the possibility of granting legal protection. The configurations in which the policyholder can exercise such a right to object vary depending on the provider. The most common is a right to object in cases in which the insured person is alleged to have violated the financial interests of the policyholder.
In summary, Partial Criminal Legal Protection in D&O insurance is tailored to the needs of executives, while Specialist Criminal Protection Insurance provides more comprehensive protection for companies covering the entire company and its employees. Partial Criminal Legal Protection is therefore quite justified, but is far from sufficient to adequately cover the criminal law risks for companies and natural persons.
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