Last 11 January 2016 Central Examining Court no. 3 (“Juzgado Central de Instrucción nº 3”) decided 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 could not be used as a guarantee that covers the eventual civil liability of the insured (indicted directors or officers) and the Court did not accept the policy filed by D&O insurers as a bail.

This decision was appealed by the indicted insured arguing that the D&O policy does cover civil and criminal bails, even when the crimes investigated can only be committed intentionally. Besides, the insured said that the policyholder is not the only prejudiced party (there are third parties that could have been harmed by the acts of the insured, such as shareholders and bondholders, so the policy would guarantee the indemnities that would have to pay to them in case of a condemn in the criminal proceedings). Finally, it was also argued by the insured that the filing of the policy by the insurers (as the bail requested by the Court) is a clear acceptance of cover.

On 19 February 2016 the Section 3rd of the Criminal Chamber of the National High Court (“Sección Tercera de la Sala de lo Penal de la Audiencia Nacional”) has issued a judgment rejecting the appeal and confirming the first instance decision.

The National High Court concludes that the purpose of the precautionary measures, such as civil bails requested to the indicted person to guarantee the civil liability that can derive from the crime allegedly committed, is to restrict the free disposal of the indicted´s assets in order to guarantee the economic liability that could be declared in a criminal proceedings (including civil liability, legal costs, fines, etc.). Although it is not expressly said, it can be deducted that the Court understands that this purpose of the precautionary measures could not be reached if someone different than the indicted person (i.e. the D&O insurer) grants the bail.

Furthermore, the Court says that the D&O policy only benefits the indicted director or officer and the insurance companies, not to the policyholder, that could be forced to pay twice, to the indicted officer who received a millionaire indemnity when he left the company (which is the fact that motivates the criminal indictment) and to the insurer, that, in case of an adverse decision and the enforcement of the bail, could recover from the policyholder the indemnities paid as a consequence of the acts of the disloyal administrator, according to the insurance contract at hand.

Should this decision becomes widespread, it could mean that, even when it is expressly foreseen in the policy, the bail cover could not be used in criminal proceedings to guarantee the civil liability of indicted insured of D&O policies. This could have an important impact on current trends in the D&O Spanish market.