If you are a director or officer for a multinational company in Spain, then you should know this
When it comes to determine whether there is an exposure to Directors and Officers in foreign countries, multinational companies at a first instance will have a look on some basic questions: Are there Directors and Officers of the subsidiaries or operating companies in the foreign country? Could a local Director and/or Officer be sued? Are large local assets exposed to be targeted by claimants?
Now, if the answer to any of these questions has been “yes”, most companies will focus on countries that require a local admitted insurance and/ or have tax implications. Especially when it comes to countries in the European Union, it is generally understood that “Freedom of Service” regulation applies and no local policy is required.
What is mostly ignored is that there are implications regarding Local Insurance Terms: Local policies may offer coverage that is not provided by the domestic master policy.
In Spain, there are three main areas of coverage in D&O policies that you need to pay special attention to:
While D&O policies would usually cover costs of bonds, the Spanish insurance market offers a broader coverage due to the Spanish legal system and the market conditions itself. Here some insights:
There are two different kind of bonds a judge in Spain can impose during a criminal proceeding:
The way in which bonds should be deposited is left to the discretion of the Judge and can be deposited either by the defendant or by a third party in cash, real guarantee like a pledge over assets, a bank or an insurer guarantee.
In Spain, D&O insurance policies will usually provide not only coverage for the costs to run the bonds as most D&O policies do: they also cover the Civil Bond itself, and may provide cover for the Criminal Bond as well.
In 2010, and later in 2015 as amendment, the Spanish Criminal Code was modified, including criminal liability for corporates. In fact, the latest reform in 2015 verifies that there is a trend in imposing criminal liability for corporates under the Spanish legal system.
Corporates can be held liable for certain crimes specified in the Spanish Criminal Code, more specifically for crimes related to fraud, insolvency, corruption, bribery, money laundering, tax crimes, discovery and disclosure of secrets, and crimes against intellectual and industrial property, the market and consumers.
Corporate liability will arise when one or more of these crimes have been committed, on the company’s behalf and for its benefit, by its legal representatives, or by those who individually or as members of the company’s bodies, are authorised to take decisions on behalf of the company or are entitled to take organisational decisions within the corporate or to control it.
After the first modification in 2010, the D&O market in Spain started to include a new extension for entity cover that provides Defense Costs incurred by the entity during criminal proceedings, usually applying a sublimit and deductible.
Under the previous regulatory framework in Spain there was some ambiguity in relation to the limitation period, due to the coexistence of different regulations along with jurisprudence of the Supreme Court. The reform of the Spanish Corporate Law in 2014 set an end to the legal discussions with the new article 241 bis, which clarifies that directors’ liability will prescribe after four years from the day legal action of a third party against the director could have been exercised.
Spanish D&O policies have been evolving since the new law was passed in 2014, and will usually offer a "lifetime" coverage, in particular for leaving Directors and Officers in order to cover eventual future claims, for acts or omissions during their management.
When considering to purchase D&O policies for subsidiaries, multinational corporates need to take into account not only tax and regulatory implications, but also the possibility that a local D&O policy may offer a broader coverage than the master policy does. If this is not approached correctly, D&O’s and the entity may found themselves involved in claims that the insurer of the master policy will not cover, which can lead to significant losses that have a direct impact on the balance sheet. In Willis Towers Watson we can help you to find the best insurance solution for your D&O’s.
