On Directors' And Officers' Liability Insurance

On January 23, 2002, Ping An Insurance Company of China produced the first " directors' and officers' liability insurance " (called D & O Insurance for short) of China in cooperation with Qiu Bo Insurance Group Company of America. At that time, China had entered WTO before long, which means companies inland have to face intense competition and challenges. Furthermore, directors and senior officers have to shoulder heavier obligations and responsibilities. Since D & O Insurance is still a new thing in our country, to analyze its theoretical foundation and practical significance and study the problems it confronted with as well as its development countermeasures is very important, whether for its own perfection and development or for ensuring directors and senior officers against possible risk while performing their duties. Three parts of contents will be discussed in this paper.Part one is the summary of D & O Insurance. It includes following two aspects:One is the formulation of D & O Insurance. D & O Insurance was originated in America in the 1930s and expanded obviously in late 1960s. In 1989 and 1990, Company Law of England and Company Law of Japan provide D & O Insurance separately. Now, it has become universal that corporations purchase D & O Insurance for directors and senior officers in developed countries. D & O Insurance is still at an early stage in our country. Since Ping An Insurance Company of China produced the first D & O Insurance of China in cooperation with Qiu Bo Insurance Group Company of America on January 23, 2002, nearly 100 companies have purchased this kind of insurance. The other is the basic clauses of D & O Insurance. D & O Insurance system is based on interrelated clauses in a policy. Though there are few same clauses of D & O Insurance in practice, it basically includes cover clauses, exclusion clauses and other particulars. Cover clauses consist of party clauses, partaker clauses and scope of cover clauses etc. Exclusion clauses consist of excluded risk clauses, scope of exclusions clauses and excluded losses clauses etc. Other particulars generally include franchise clauses, limitation of liability clauses, disposal of indemnification clauses and the obligations of applicant and insured clauses etc. However, there are still some slight differences of D & O Insurance among countries and insurance agents.Part two is the theoretical foundation and practical significance of D & O Insurance. It includes following two aspects: One is the theoretical foundation of D & O Insurance, which is the most important portion of this paper. D & O Insurance is a breed of liability insurance, of which the subject matter of the insurance is the indemnification of directors as an individual to the third parties according to law, which becomes a direct theoretical foundation of D & O Insurance. For liability is the second obligation as the result of disobeying the first obligation, the fact that directors have to take on definite obligations becomes the theoretical precondition of his taking on definite liability, as well as the theoretical precondition of D & O Insurance. It is also known that rights and obligations always exist as contents of definite legal relation. The rights and obligations of directors cover an extensive range, some of which aim at corporations, some aim at shareholders and the third parties. But radically, these rights and obligations arose from the relationship between directors and corporations, which becomes the theoretical basis of D & O Insurance. In our country, directors are not only members of board of directors, but also fiduciaries of corporations. There lies commission relationship between them. Based on this relationship, directors take on the obligations of faith and attention. The former aims only at corporations, the later also aims at the third parties. Directors who disobey these obligations have to undertake liabilities accordingly. These three aspects make up the theoretical foundation of D & O Insurance together.The other is the pra...