As D&O insurance gains popularity in Colombia and significant growth is forecast, this article provides a summary for insurers of the issues that often arise during the underwriting and the handling of claims under D&O Policies for Public Officials in Colombia:
1. Unlike a conventional commercial D&O policy, the definition of insured is limited to a list of directors and officers. The scope of who is insured is far more limited than under a commercial D&O policy.
2. Usually, sub-limits apply according to the rank of the insured and the process initiated against that person.
3. The most frequent claims for indemnity arise from judicial or administrative procedures and associated defence costs. The most common fall into 3 categories:
3.1. Fiscal Liability Proceedings which are conducted by the CGR, a government authority which among other functions, controls the use of public funds through the supervision of public entities, and private parties which have access to public funds.
Through such proceedings, the CGR seeks to determine that public officials and private persons, during their exercise of fiscal management, caused damage to the State’s assets, and to secure payment of an indemnity for the State. In the event that an investigated person is declared liable, they must pay monetary compensation for the damage caused.
According to Article 44 of Law 610/2000, in cases where there is an insurance policy covering the respondent or the goods or contracts affected by the misconduct, the insurer shall be joined to the proceedings as a potentially liable third party, and may be ordered to pay compensation to the State. Once joined to the Fiscal Proceedings, the insurer will have the same rights as the principal accused.
The exposure of the insurers will be i) Defence costs, and ii) Damages – compensation to the State.
3.2. Disciplinary Proceedings which are carried out by the PGN, a government authority which has responsibility for protecting the public interest and overseeing the conduct of public servants in the execution of their official duties. The Disciplinary Proceedings assess the behaviour of public servants and individuals exercising public functions against administrative standards of ethics.
The Disciplinary Proceedings may result in sanctions such as dismissal, disqualification from public sector employment, suspension, fines and written warnings which remain on the individual's employment record.
In principle, the exposure of insurers will only be in respect of the D&O’s defence costs.
3.3. Criminal Proceedings that are handled by the FGN, a government authority which has responsibility for investigating and prosecuting criminal conduct.
In the event that an investigated person is found guilty, he/she will be subject to penalties such as imprisonment, fines and disqualification from the exercise of public rights and functions.
Initially, the insurer exposure is to paying defence costs, pending any final adjudication of dishonesty. However, a person affected by the crimes under investigation may seek compensation within the criminal process as a “civil party” which may be indemnifiable under the D&O policy, depending on the facts of the case.
4. For covered claims, it is common for the policy to impose a short period for insurers to respond to a request to pay defence costs, and in the absence of a response the demand is considered accepted.
D&O Insurance for Public Officials is mandatory for each public entity. This note summarises the issues which frequently arise for claim handlers and does not seek to address all points which may arise which will depend on the facts of each case.