• One of the main reasons (probably the most important one) when taking out D&O policies worldwide is to get an insurance cover of the legal defense expenses that the insured can face in case that any claim is filed against them.
  • In Spain, apart from the legal defense costs cover, it is also very important, and broadly offered by the insurance companies in the market, the bail cover. In practical terms, when a criminal proceeding is started in order to investigate the commission of a crime by one of the insured, the Examining Criminal Court usually requests the insured/indicted person to guarantee the civil liability that can derive from the crime allegedly committed. The bail cover implies that the insurer will grant a civil bond, as a kind of guarantee of the insured´s civil liability.
  • This cover has raised many problems when the insured has been indicted due to the possible commission of an intentional or wrongful act. The D&O policies usually state that they do not cover claims deriving from intentional, wrongful or fraudulent acts committed by an insured person, so when those crimes/offences the directors and officers are accused of (i.e., dishonest and fraudulent management, fraud and illegal taxation and corruption) can only be committed intentionally (the Criminal Code does not foresee the commission of these crimes negligently), the exclusion would be theoretically applicable.
  • Nevertheless, the exclusion of intentional or wrongful acts cannot be opposed to the third prejudiced party on the grounds of section 76 of the Spanish Insurance Contract Act, so until now the insurer is usually forced to grant the civil bond, even when the insured is accused of a crime that only could be committed intentionally and/or when the policyholder has been harmed by the acts of its indicted administrator.
  • The decision issued by Central Examining Court no. 3 (“Juzgado Central de Instrucción nº 3“) on 11 January 2016 can imply an important change in the current situation. This judgment says that in case of crimes that can only be committed intentionally, the D&O policy could guarantee the indemnities to be paid to third parties, but it will never guarantee the damages suffered by the own policyholder due to the acts of its directors and officers. Consequently, the policy that was taken out by the policyholder cannot be used as a guarantee that covers the eventual civil liability of the insured (indicted directors or officers).
  • This decision is just a first instance decision and it is not case law, but it can change the way on which the bail cover of D&O policies is construed in Spain. From now on, insurers could deny the requests of granting civil bonds filed by policyholders and insured in this kind of situations so it is likely that more conflicts between policyholders and insurance companies arise in the next future in this context.