D&O insurance
D&O civil liability insurance safeguards the personal assets of company managers against financial losses arising from errors or decisions made in the course of their professional responsibilities.
It acts as a financial protection layer for individuals responsible for key decisions within a company — from board members to senior executives.
Who takes responsibility when decisions lead to claims?
Every business decision carries an element of risk. In some cases, that risk does not remain at company level and can turn into personal liability for those in leadership positions. Even when acting in good faith, board members and senior managers may face claims brought not only by shareholders, but also by employees, business partners, clients, or public authorities.
Personal liability is also defined by Latvian law
Latvian legislation explicitly regulates the responsibilities of company management. Section 169 of the Commercial Law states that members of the management board and supervisory board must perform their duties as careful and prudent managers. If these duties are breached, liability may arise jointly and individually — meaning personal assets can also be exposed to financial claims.
Who is D&O insurance designed for?
A Directors & Officers (D&O) insurance policy is intended to protect individuals who make or influence key business decisions. Insured persons typically include:
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members of management and supervisory boards;
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senior executives (such as CFOs, COOs, department heads);
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managers at the first and second leadership levels;
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members of audit, procurement, or oversight committees;
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individuals performing supervisory or control functions;
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spouses or partners of insured persons, where claims affect joint property.
What types of risks are covered?
D&O insurance covers financial losses resulting from claims against insured persons arising from wrongful acts in the course of their professional duties. Examples include:
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negligence or lack of due care;
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incorrect or misleading financial information;
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incomplete or inaccurate documentation;
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faulty decisions made on behalf of the company;
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failure to act in critical situations where action was required.
What is the difference between Side A and Side B coverage?
In D&O insurance, protection is usually divided into two core parts: Side A and Side B. While both relate to claims against directors and officers, they protect different parties and apply in different situations. Understanding this distinction is essential to know whether the policy responds for the individual or for the company.
SIDE A – Protection for the individual
What does it cover?
What does it cover?
This coverage is focused on the personal financial protection of the official if a claim is brought against them for wrongful or negligent actions taken while performing their duties.
When does it apply?
When the company is not legally or financially able to reimburse the manager for legal defence or compensation costs.
Payment is made directly to the individual, not to the company.
Important:
Side A is the only coverage that applies if the company is insolvent or refuses to cover the expenses.
SIDE B – Protection for the company
What does it cover?
This coverage applies to the company’s reimbursement costs when it has itself chosen to cover legal expenses for its officials.
When does it apply?
If the company reimburses the official for defence costs or compensation paid to claimants.
The insurer then reimburses this amount to the company.
In practice:
Side B protects the company’s cash flow, but the individual’s protection still depends on the company’s willingness to support them financially.
Why is this important?
Although both coverages together create the full protection of D&O insurance, they serve different purposes:
Side A
Recipient: Individual (natural person)
Purpose: Personīgo aktīvu aizsardzība
Paid directly: Yes, to the individual
Situation: When the company cannot or may not pay
Side B
Recipient: Company
Purpose: Reimbursement of company expenses
Paid directly: No, only to the company
Situation: When the company has already paid on behalf of the individual
The best protection for both the company and its officials is only ensured when the policy includes both Side A and Side B coverage at the same time.
What types of losses can be covered?
D&O insurance may cover a wide range of costs arising from management-related claims, including:
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legal defence and litigation expenses,
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compensation payable to claimants,
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reputation management and crisis response costs,
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expenses incurred to prevent or reduce losses,
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in certain cases, claims related to taxes or company insolvency,
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cyber-related claims, provided they are brought against an individual officer.
What is not covered by D&O insurance?
D&O policies do not apply to all situations. Coverage is typically excluded for:
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fraud or intentionally criminal actions,
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claims involving bodily injury or physical property damage,
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professional liability (for example, the activities of doctors, lawyers, or other regulated professions),
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penalties resulting from deliberate regulatory breaches,
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claims or disputes known prior to the policy period,
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tax assessments, except in limited insolvency-related scenarios.
Is company protection alone sufficient?
Even if a company normally covers legal costs, such protection has limits.
If a company becomes insolvent, or if a director or officer has acted beyond their authority or against the company’s interests, personal liability may still apply.
In these situations, D&O insurance provides an additional layer of protection for board members and senior management.
How much does D&O insurance cost?
The price of a D&O policy varies depending on several factors, such as:
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company turnover and size,
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the risk profile of the industry (e.g. construction, IT, financial services),
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the selected coverage limit (for example, EUR 100,000 or EUR 1,000,000),
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the company’s prior claims or incident history.
As a general indication, basic coverage for a small business may start from around EUR 1,000 per year.
Do I really face personal risk as a board member or executive?
Yes. Even unintentional mistakes or imperfect decisions can result in claims against an individual.
In Latvian legal practice, claims are increasingly brought directly against specific officers, not only against the company itself.
Can small businesses also purchase D&O insurance?
Yes. In fact, small and medium-sized companies are often more exposed to risk, as decision-making is concentrated among a limited number of individuals.
Legal defence and litigation costs alone can exceed a company’s available resources within a short period of time.
Who is the policyholder – the company or the individual?
The company is the policyholder of a D&O insurance policy.
Our experience shows –
D&O insurance often only comes into focus after a conflict, dispute, or mistake has already occurred. However, its true value lies in prevention. It provides company leadership with confidence and peace of mind when representing the business in complex and high-stakes situations.
If you are a company executive or board member, it is important to proactively assess your personal liability risks. Even the best intentions and professional conduct do not guarantee immunity from claims or errors. D&O insurance is a practical tool that enables clearer, more confident decision-making — with the assurance that you have protection in place.