The increase in litigation, the technical sophistication of claims and the growing economic severity of convictions make it necessary to approach this area from a comprehensive perspective that combines corporate, insolvency and insurance analysis.
At the Insurance and Civil Liability Department of Belzuz Abogados S.L.P., we have been continuously analysing the evolution of the risk arising from the liability of directors and officers in the current economic and regulatory environment.
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An expanding liability environment: the new scenario for insurers
The liability of directors has undergone a profound transformation in recent years. We are no longer faced with a scenario dominated exclusively by cases of fraud or openly illegal actions, but rather with a framework in which the omission of adequate controls, the failure to react to financial warning signs or insufficient supervision of regulatory compliance can give rise to personal liability.
The regulatory basis for this evolution can be found in Articles 225 et seq. of the Capital Companies Act, which establish a standard of qualified diligence. Directors must perform their duties with the diligence of an orderly businessman and a loyal representative, which implies not only acting correctly, but also effectively organising internal control and supervision systems. The case law of the Supreme Court has reinforced this idea by linking the standard of diligence to the size, structure and complexity of the company, introducing a notion of professionalisation of the position.
For the insurance market, this development represents a shift in risk from malicious conduct — usually excluded from coverage — to cases of gross negligence or breach of the duty of loyalty, the boundaries of which are not always clear. The boundary between business error protected by business discretion and negligent conduct likely to give rise to liability becomes an area of interpretative tension both in court and in the policy sphere.
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Liability for corporate debts: recurring litigation and tension over coverage
One of the most significant areas of claims continues to be joint and several liability for corporate debts under Article 367 of the Capital Companies Act ( ). This is a quasi-objective liability that is triggered when there is a legal cause for dissolution and the administrative body does not call a meeting to agree on the dissolution or does not file for bankruptcy within the legally prescribed period.
In legal practice, the action is structured with a relatively simple evidentiary framework: proof of the cause for dissolution (usually losses that reduce net assets to less than half of the share capital), inactivity on the part of the administrator, and the existence of subsequent debts. Case law has clarified the requirements, but at the same time has consolidated an effective procedural route for creditors, which explains its high frequency.
From a D&O insurance perspective, these claims raise complex technical issues. First, determining whether the failure to promote dissolution constitutes a “management act” covered by the policy. Secondly, the possible concurrence of conscious fault or eventual malice, which could trigger exclusions. And finally, the time limit in claims-made policies: determining when the claim or relevant circumstance is deemed to have occurred is essential to establish the affected annuity and avoid intertemporal conflicts.
Experience shows that early intervention—from the notification of the first extrajudicial claim—allows the defence strategy to be guided and significantly reduces the final economic impact.
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Insolvency law and deficit convictions: a high-intensity risk
The culpable qualification regime in the field of insolvency represents one of the most severe economic scenarios for administrators. The Consolidated Text of the Insolvency Law has systematised the cases that may give rise to culpable qualification, including the generation or aggravation of insolvency through wilful misconduct or gross negligence.
The possible conviction for covering the insolvency deficit —that is, the obligation to satisfy the part of the liabilities not covered by the assets— constitutes a risk of extremely high economic intensity. From an insurance perspective, the key issue is to determine the legal nature of such a conviction. If it is interpreted as liability for compensation to the estate, it could fall within the concept of compensable “loss”; if it is classified as a penalty resulting from seriously reprehensible conduct, it could fall outside the scope of coverage.
The specific wording of the policy is decisive: exclusions for wilful misconduct, clauses relating to administrative or criminal penalties, definition of compensable loss and advance payment of defence costs. In addition, the procedural stage at which the obligation to advance such costs arises—usually from the admission of the qualification section—can generate significant tensions in terms of insurance cash flow.
An appropriate strategy requires intervention from the initial phase of the insolvency proceedings, analysing the reports of the insolvency administrators and articulating a technical defence that limits the causal attribution and economic scope of a possible conviction.
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Emerging risks: regulatory compliance, ESG and duty of supervision
The scope of liability has been extended to areas traditionally considered regulatory. Requirements in the areas of corporate governance, sustainability and regulatory compliance have transformed the material content of the duty of care. The absence of effective prevention systems may be interpreted as an autonomous breach of the duty of supervision.
The supervisory activity of the Spanish National Securities Market Commission and the growing influence of European Union law have consolidated more demanding interpretative standards in terms of transparency, non-financial information and risk management. In this context, directors are not only liable for wrong decisions, but also for the lack of adequate structures to enable informed decisions to be made.
The business judgement rule, incorporated into our legal system, acts as a protective mechanism provided that certain conditions are met: the decision was made in good faith, without personal interest in the matter, with sufficient information and following an appropriate procedure. The burden of proof for these conditions makes document traceability an essential element.
For insurers, this new scenario implies an increase in claims related to administrative investigations, disciplinary proceedings or class actions. Coverage of defence costs and specific sub-limits are particularly relevant in this type of claim.
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Delimitation of the insured risk: drafting of policies, exclusions and management of complex claims
The sophistication of claims has highlighted the crucial importance of the technique of drafting D&O policies. Seemingly well-established concepts such as “wrongful act”, “claim”, “circumstance” or “loss” require precise definition to avoid broad interpretations.
The case law of the Supreme Court on the interpretation of insurance contracts, especially in distinguishing between clauses delimiting risk and clauses limiting rights, requires extreme formal and material rigour in drafting. A poorly configured exclusion may be considered limiting and, therefore, unenforceable if it does not meet the legal requirements of transparency and express acceptance.
In claims-made policies, the correct articulation of retroactivity, discovery periods and the definition of a claim is essential to avoid overlaps or gaps in coverage. Likewise, the provision of specific sub-limits for expenses related to in r investigation, administrative proceedings or insurable fines can significantly alter the final financial exposure.
The management of complex claims should not be limited to legal defence. It requires a coordinated analysis of the content of the proceedings and the applicable clauses, with the aim of establishing a consistent position that preserves the technical stability of the portfolio and avoids interpretative precedents that unexpectedly extend the insured risk.
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Prevention and reduction of claims: a comprehensive approach
Experience shows that effective reduction of D&O claims is not achieved solely through effective procedural defence, but through a comprehensive preventive policy. Reviewing the internal protocols of the administrative body, properly formalising corporate agreements and effectively implementing compliance systems significantly reduce the likelihood of successful claims.
From an insurance perspective, collaboration with a firm specialising in insurance and civil liability allows the underwriting phase to be integrated with preventive legal analysis. Early identification of structural risks—internal control deficits, concentration of functions, absence of risk matrices—facilitates the adoption of corrective measures before they materialise into claims.
Likewise, the standardisation of criteria for dealing with similar claims strengthens technical consistency and reduces uncertainty in portfolio management.
Conclusion
D&O insurance is undergoing a phase of redefinition marked by regulatory expansion, sophisticated case law and an increasingly intense claims culture. Today, directors’ liability extends to corporate, insolvency and regulatory areas with increasing economic severity.
Our Insurance and Civil Liability Department approaches this scenario with a strategic perspective that integrates substantive analysis, contractual interpretation and prevention. We understand that proper D&O risk management is not limited to reacting to litigation, but requires anticipation, technical expertise and a coordinated vision between the insurer and legal advisor.
In an increasingly demanding market, technical soundness and strategic consistency are essential elements in ensuring not only risk coverage, but also true risk control.