What Directors and Officers Insurance Is
Directors and Officers insurance — D&O insurance in practice — is a form of liability insurance through which a company protects the members of its governing bodies: directors, executives and other officers, against the risk that legal liability may arise against them. Under Article 3 of the Law of Georgia on Insurance, insurance is a relationship for the protection of the personal and property interests of natural and legal persons upon the occurrence of a defined circumstance — an insured event — at the expense of monetary funds formed from insurance contributions, that is, insurance premiums, paid by those persons, and of other sources permitted by the legislation.
The same article defines insurance activity as the activity of the insurer connected with the conclusion and performance of contracts of insurance and reinsurance. A D&O policy is issued precisely within that activity: the insurer and the policyholder — usually the company — conclude a contract under which the insured interest is protected upon the occurrence of the insured event. For a company whose directors take decisions daily that may later be challenged, this mechanism converts an unpredictable liability risk into a managed, contractual one.
The Object of Insurance and Where D&O Fits
Article 4 of the Law on Insurance provides that the object of insurance may be any property or personal non-property interest that does not contradict the legislation of Georgia. The law distinguishes three directions: personal insurance, connected with the life, health, working capacity and other personal interests of the insured; property insurance, connected with the possession, disposal and use of property; and liability insurance — insurance connected with damage caused by the insured to a third person or to that person's property.
D&O insurance belongs to the liability insurance group: its object is the property interest connected with the possible occurrence of liability of a manager — a member of a governing body — toward third persons. The norms under which that liability itself arises are established by other legislation; the Law on Insurance provides the instrument through which the financial consequences of that risk are shifted to the insurer. Understanding this division matters when the policy is drafted: what is being insured is not the office as such but the property interest linked to liability.
Voluntary and Compulsory Forms
Under Article 5 of the Law on Insurance, insurance is carried out in voluntary and compulsory forms. D&O insurance is a voluntary form: it is implemented on the basis of a contract concluded between the insurer and the policyholder, and the types, conditions and procedure of voluntary insurance are established precisely by that contract. This means that the content of the policy — which events will be insured events, what limits apply and what exclusions operate — is a matter of the parties' agreement, and negotiating it carefully is decisive for the real value of the cover.
Voluntary insurance is carried out by any licensed insurance organization of Georgia. As for the compulsory form, it is defined by the relevant legislation on compulsory insurance: in that case the insurer is obliged to conclude a contract on the conditions determined by law and has the right to offer the policyholder conditions more favorable than those established by law. The flexibility of the D&O product lies exactly in its contractual nature: within the limits of the law, the parties shape the scope of protection themselves.