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Directors and Officers Insurance

Does D&O insurance cover fraud?

No, D&O policies strictly exclude coverage for fraudulent, criminal, or intentional illegal acts once established by a final court judgment.

Is D&O insurance mandatory in Georgia?

It is not mandatory by law for private companies, but it is highly recommended and often required by investors or for companies listed on stock exchanges.

Can a startup get D&O insurance?

Yes, startups are encouraged to get D&O insurance, especially if they are raising venture capital, as investors often require board members to be insured.

What is the "Business Judgment Rule" in Georgia?

It's a legal principle in the Law on Entrepreneurs stating that a director is not liable for a business decision that turned out bad if they acted in good faith, informedly, and without conflict of interest.

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Directors and Officers (D&O) Insurance: Legal Protection for Management

In the modern corporate world, company leadership faces increasingly high risks. Directors and Officers (D&O) insurance is a critical tool that protects the company's management team from personal financial liability. When a company director makes a strategic decision, there is always a risk that this decision may result in losses for shareholders, creditors, or third parties. The new "Law of Georgia on Entrepreneurs" significantly tightens the fiduciary duties of executives, increasing the likelihood of litigation against them. D&O insurance covers the costs associated with lawsuits filed against managers, their defense expenses, and potential settlements if it is determined that they made an unintentional error while performing their duties.

With the development of the business environment in Georgia, foreign investors and large local companies increasingly require the existence of a D&O policy as a standard of corporate governance. Legal.ge offers access to qualified lawyers and insurance law specialists who will help you assess risks and structure an optimal insurance package.

What Does D&O Insurance Legal Service Cover?

This service is not just about purchasing an insurance policy; it is a complex legal process requiring an analysis of the company's charter and management contracts. Key components include:

  • Legal Risk Audit: Identifying potential risks arising from the company's activities that threaten directors (e.g., tax errors, employment disputes, intellectual property infringement).
  • Negotiating Insurance Terms: Interacting with insurance companies to minimize specific exclusions and expand coverage areas.
  • Structuring Side A, B, and C Coverage: Defining when the policy protects the director personally and when it reimburses the company for costs incurred on behalf of the director.
  • Business Judgment Rule Protection: Developing legal mechanisms to ensure insurance covers good faith errors rather than intentional misconduct.
  • Claims Settlement Assistance: Providing legal representation to obtain compensation when an insured event occurs.

Common Scenarios When D&O Insurance is Critical

Directors' liability insurance is particularly relevant in the following situations:

  • Raising Investment: Venture funds and angel investors often require D&O insurance before appointing their representative to the board of directors.
  • Bankruptcy or Insolvency Proceedings: When creditors sue the director alleging mismanagement of the company and misappropriation of assets.
  • Mergers and Acquisitions (M&A): When new owners sue the old management for misrepresentation of financial data after the company is sold.
  • Minority Shareholder Lawsuits: When small shareholders believe that a director's decision reduced the company's value or restricted their rights.
  • Regulatory Fines: For example, sanctions imposed by the Personal Data Protection Service or Labor Inspection if caused by managerial negligence.

Georgian Legal Framework

The legal foundations for D&O insurance stem from the Law of Georgia on Entrepreneurs. The new legislation imposes duties of "care and loyalty" on directors. If a director breaches these duties, they are liable with all their personal assets. The law also provides for the "Business Judgment Rule," which protects a director from liability if they acted largely informed and in good faith. D&O insurance is built on this very principle — it does not cover fraud or intentional crimes (which are punishable under the Criminal Code of Georgia), but it covers managerial errors. Additionally, the Civil Code of Georgia regulates the general conditions of insurance contracts, which must be considered when drafting the policy.

Steps in the Process with a Specialist

A lawyer selected on the Legal.ge platform will assist you in the following stages:

  1. Needs Analysis: Assessing the company's size, industry, and governance structure to identify risks.
  2. Insurance Market Research: Finding the best offers and comparing terms (not just by price, but by quality of coverage).
  3. Contract Adaptation: Tailoring the standard policy to the company's specifics to avoid loopholes written in "fine print."
  4. Management Briefing: Conducting training for directors on what the insurance covers and how to act if a claim is received.
  5. Ongoing Monitoring: Updating the policy in parallel with changes in legislation or company status.

Why Legal.ge?

D&O insurance is a complex product where one incorrect term can mean a denial of coverage at a critical moment. Insurance agents often sell standard products that do not account for the corporate nuances of a specific company. Legal.ge connects you with independent lawyers who protect your interests, not those of the insurance company. Find your advisor on Legal.ge and manage your company without unnecessary fear.

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