Conceptual Framework of Liability Insurance
Directors' and officers' liability programs, like professional liability insurance generally, rest in Georgia on the Law of Georgia on Insurance. Under the law, the object of insurance may be any property-related or personal non-property interest that does not contradict Georgian legislation. Within this framework, liability insurance is of particular importance — insurance connected with damage caused by the insured person to a third (natural or legal) person or to that person's property. It is precisely this category that covers programs allocating the liability risks of governing persons and professionals.
It is worth noting that the law does not give these products a separate statutory name: directors' and officers' liability insurance belongs to the voluntary non-life class, and its detailed content is shaped by civil-law design — the conditions of the contract. When building a program, the precision of the contractual formulations is therefore decisive.
Licence Classes and the Insurer's Corporate Form
The licence for insurance activity is issued by the Insurance State Supervision Service in accordance with the Law on Licences and Permits, and may be granted only to a joint-stock company. The licence is issued for only three activities: life insurance; insurance (non-life); and reinsurance. Professional liability programs fall within the non-life class.
The licence is issued for an indefinite term and to a specific insurer, and its transfer to another legal person is impermissible. The insurer must use the insurance licence at least once every 6 months, and where changes are made to the documents submitted for licensing it must notify the Service and submit the relevant documents within 7 working days of the change. A licence applicant submits, among other things, a 3-year business plan and documentation confirming the fitness of significant shareholders and administrators.
The Insurance Broker's Mandatory Professional Liability Cover
The law makes professional liability insurance mandatory for insurance brokers: the basis of a broker's financial stability is its capital/guarantee fund and professional liability insurance. At every stage of carrying on intermediation activity in the insurance field, the broker must hold the minimum amount of capital/guarantee fund established by the Service, placed continuously, with a periodicity of at least 1 year, in a licensed bank in Georgia in a segregated account opened for this purpose.
Furthermore, at every stage of its activity the broker must hold professional liability insurance defined in the manner established by the Service — including the limits and insurance conditions. The broker must keep its own account and the consumer's account segregated at a licensed commercial bank; funds in the consumer's account may be used only for transferring the insurance premium to the insurer and transferring insurance compensation to the insured. By 15 April of the year following each calendar year the broker submits to the Service its audited annual financial report for the previous year.
The Regulator's Role and Delegated Rules
The Service is expressly authorised to establish the rules of insurance brokers' professional liability insurance — a normative regulation delegated by name in the law. The Service also issues and revokes licences for insurance activity, registers brokers, supervises compliance by insurers and brokers, determines minimum capital amounts and applies sanctions. For a program designer this means that the product's technical parameters — limits, conditions, minimum requirements — must conform to the Service's current normative acts.
Design Checkpoints for the Program
When constructing a liability insurance program, the following checkpoints are recommended:
- correct qualification of the object of insurance — the interest connected with damage caused to third parties;
- definition of the circle of insured persons — officers, the company or a professional group;
- the list of insured events and exclusions;
- compensation limits and the method of calculating the amount;
- the form of the policy and the procedure for issuing certificates to each insured person;
- where a broker is involved — compliance with its professional liability insurance and capital/guarantee fund requirements.
Frequently Asked Questions
Is directors' and officers' liability insurance compulsory?
Only the insurance broker's professional liability insurance is compulsory by law; directors' and officers' liability cover is a voluntary non-life product whose conditions are set by the contract.
Under which licence class are such programs issued?
The insurance licence is issued in three classes — life insurance, non-life insurance and reinsurance; professional and management liability programs belong to the non-life class.
Who writes the broker's professional liability insurance rules?
These rules are delegated by the law and adopted as a normative act of the Insurance State Supervision Service, including the limits and insurance conditions.
What restrictions apply to the insurer itself?
The licence is issued only to a joint-stock company, for an indefinite term and to a specific insurer; it cannot be transferred, and it must be used at least once every 6 months.
How We Help on Legal.ge
The Legal.ge team helps design liability insurance programs, audit existing policies and structure relations with a broker. Write to us — we will assess your risk profile and plan the optimal structure of the program.