Directors Liability Insurance Law Study

Directors' and officers' liability insurance (D&O insurance) has a history of more than 70 years. It has come into being an integrated system and been popular in common law countries. D&O insurance is a sort of interest protection mechanism for directors and officers. In common law countries, Directors have fiduciary duty. Once they act against it, there may be corresponding liability. D&O insurance takes the civil liability as its liability principle, so that directors could be free. With the development of national securities business, directors in Chinas are also more and more possible to face the lawsuit made by shareholders, creditors and even the company's employees. So we also need D&O insurance in China to give directors a protection to some certain extent. I put forward some viewpoints in this paper after worked over the D&O insurance system inside and outside. The study method is comparative method, and the existing practice in this field is an important part in this paper. There is a comprehensive description of the D&O practice in common law countries, and a detailed legal analysis is made. The conception and the background of D&O insurance are expatiated at the first part. In the second part of this article, there is the analysis on the legal theory of the D&O insurance. Not only the directors' status and duties, but also other methods on protection of directors have been discussed in detail. Civil liability is the basic of D&O insurance. Although D&O insurance has just started in China, To import this kind of insurance is feasible in consideration of its legal basis. But there still has some legal issue need to be made up. The paper put forwards some suggestion on the development of D&O insurance in China, including consummate the material law and the procedural law in the third part. The issue in D&O insurance policy is expatiated in detail. It is an important part of the article, which including the definition of the insureds, the third party, period, loss and wrongful act. There also have descriptions on the liability coverage, exclusions,correlative obligations on the insureds and the insurers, the burden of insurance premium, the settlement and defence clause and so on. There are four insuring agreements parts in the D&O insurance policy, which are the Direct Coverage of Directors and Officers, the Corporate Reimbursement Coverage, the Entity Coverage and the Defense Coverage. In the first part, the D&O Insurance takes the directors' civil liability as its liability principle. In common law country, the corporation indemnification to D&O was already there, and was popular in the business world. Some kinds of coverage of D&O need this indemnification as their basis, that we call the Corporate Reimbursement Coverage. But it does not exist in our country. So we should use it for reference. As for the other parts of the insuring agreements is still mentioned in this article. Furthermore the exclusions in D&O insurance policy are always listed one by one. Finally, there is some suggestion on replanting the D&O insurance clause and using the corporate reimbursement for reference. The conclusion of this paper is that we should take an interest protection mechanism for directors while strengthening their liability. So D&O insurance is inherently needed. It is a good business method that is worth learning. We should have a set of comprehensive legal system on D&O insurance to protect the directors' interests in future. At the same time we should also do our best to make it adapt to the situation on Chinese corporation when definite the key terms in D&O insurance coverage.