Earlier this year, the Brazilian Superior Court of Justice decided there should be no coverage under a D&O insurance policy due to (i) the policyholder's misrepresentation when filling in the renewal questionnaire and (ii) the practice of insider trading by an officer within the insured organisation [1].

The officer filed the lawsuit against insurers seeking coverage for his defence costs and reimbursement of a settlement amount relating to administrative proceedings initiated by the Brazilian Securities Exchange Commission (CVM in Portuguese) in order to investigate the practice of insider trading.


The evidence demonstrated that the policyholder failed to include information about the ongoing investigation by CVM in the insurance renewal questionnaire, despite the company and the main officers being aware that the practice of insider trading was under investigation. The Court found that the omission was committed in bad faith, resulting in the loss of the right to the insurance indemnity.

Insider Trading

The Superior Court of Justice held that D&O insurance does not cover acts committed by a director or officer that are not strictly and exclusively related to his function in the company. In other words, acts performed by an individual for his own personal gain or benefit, as occurs in the practice of insider trading, are not covered by D&O insurance.

CVM defines insider trading as the “operation performed by an insider with securities issued by the company, to his own profit, personal gain". As insider trading involves acting for personal advantage, using privileged information, it is not characterised as an act performed in the capacity of a director or according to any management position.

In Brazil, insider trading is also considered a crime, as per Law 10.303/2001, as well as an illegal practice according to Law nº 6.404/1976, section 165, § 1º, which expressly prohibits the use of privileged information for obtaining personal gain related to the commercialization of securities.

In the relevant case, the company failed to disclose relevant information to CVM and the market relating to its request to extend its right to sign highways concession contracts. During the period before these facts became public, some of the directors and officers negotiated securities of the company, thereby obtaining personal gains. These actions were held to be insider trading.

The Court also based its decision on SUSEP Circular No. 553/2017 (published on 24 May 2017), which expressly states that D&O insurance only provides coverage for damages caused to third parties arising out of wrongful acts, performed in the exercise of the functions for which the D&Os have been nominated, elected and/or contracted.

In accordance with that decision, the Court considered that insider trading (i) is not classified as an act of management, given that it is not performed on behalf of the company, and (ii) is deemed to be willful misconduct, which is not covered by insurance contracts.


In general, the still evolving case law relating to D&O policies in Brazil is strengthened by this new precedent, construed in a coherent and reasonable way based on the nature of the insurance contract, the policy wording and the applicable law and regulatory rules.

This article is authored by Marcia Cicarelli, Camila Affonso Prado and Laura Pelegrini at Demarest Advogados in partnership with DAC Beachcroft LLP.