RC Insurance Broker publishes study on Directors’ Liability and D&O Insurance practices

Personal liability for senior executives and business owners is rising rapidly in Russia. Over the past five years, Russian courts have ordered directors and company executives to pay more than 291 billion rubles in damages in civil proceedings. This is one of the key findings of a study of the directors’ and officers’ liability insurance market initiated by RC Insurance Broker. The analysis covered more than 2,000 court cases, together with arbitration practice data and insurance market data for the past five years.

The most stringent judicial approach has emerged in cases involving subsidiary liability: courts granted almost 60% of the claims in the 32,000 cases reviewed. Bankruptcy disputes show a similar pattern, with 60% of claims against directors being upheld.

RC Insurance Broker notes that, only a few years ago, executives regarded the risk of personal financial liability as a rare exception. Today, it is increasingly becoming a standard feature of corporate governance.

The most common claims against directors involve knowingly disadvantageous transactions, exceeding the scope of their authority, asset stripping, imprudent use of company funds and other breaches of the duties of good faith and reasonableness. Such claims may relate not only to direct losses suffered by the company but also to lost profits.

Experts attribute the growing number of claims partly to changes in judicial practice. While claims were previously brought primarily against companies themselves, claimants and regulators are now increasingly seeking to recover losses directly from the individuals responsible for management decisions.

Leaving a company no longer means that a director’s exposure has ended. A change of ownership, an IPO, an internal audit or a corporate dispute may all prompt a review of decisions made by former management.

Against this background, businesses are showing growing interest in D&O liability insurance. According to market participants, more than 850 D&O policies are issued in Russia each year, while the limit under an individual policy may exceed 10 billion rubles.
At the same time, D&O insurance is no longer treated as a purely formal compliance measure. To date, more than 130 claims have been presented, with total insurance payments exceeding 3 billion rubles.

According to the study participants, this trend reflects a broader change in how government and business view the role of company directors. Executives are increasingly regarded not merely as employed managers, but as individuals who bear personal responsibility for the consequences of corporate decisions.

“Over the past five to seven years, the practice of holding directors liable has expanded considerably, both in terms of the number and types of cases and the increase in insurance claims. Based on current trends and international experience, we can say with confidence that this practice will continue to develop in the near future. Every executive therefore needs to understand that they may be held personally liable for losses they cause and that this liability is often unlimited. Without additional protection, a director’s personal assets may be at risk. A D&O policy serves a role similar to employer-sponsored health insurance: it is essentially part of the benefits package, under which the company insures its directors against management errors that result in loss. D&O insurance has been available in Russia for 30 years, and the market has developed effective insurance solutions, specialist expertise and established claims-handling practices”, — said Ivan Eremeev, Managing Director of RC Insurance Broker.

The study was conducted with the participation of leading law firms and insurance companies, including ALRUD, KKMP Legal, SL LEGAL, Melling, Voitishkin & Partners, AlfaStrakhovanie, Ingosstrakh, VSK Insurance House, Rosgosstrakh, Yugoria and SberInsurance.