CIRCULAR SUSEP No. 553, OF 23 MAY 2017 (*)
Establishing general guidelines applicable to liability insurance of directors and officers of legal entities (D & O insurance).
The SUPERINTENDENT OF THE SUPERINTENDENCY OF PRIVATE INSURANCE - SUSEP, according to the provisions of art. 36, item "b" of Decree-law No. 73, of 21 November 1966, and considering the provisions of section II of article 34 of the Decree No. 60.459 of 13 March 1967, as well as what is stated in SUSEP file No. 15414.610483/2016-36,
Resolves:
Art. 1st To establish general guidelines applicable to liability insurance of directors and officers of legal entities (D & O insurance).
Art. 2nd After the publication of this circular, the insurance companies that wish to start operating with the D & O insurance, must submit to Susep, for analysis and filing purposes, a specific insurance plan, whose contractual terms and respective actuarial technical note must comply with these present provisions and legislation in force.
Art. 3rd For the purposes of this norm, the following definitions apply:
I – occurrence basis policy: one that defines as the object of insurance, the payment and/or the reimbursement of amounts, respectively, due or paid to third parties by the insured, in compensation for damages, stipulated by civil court or by agreement approved by the insurer, provided that:
a) the damages occurred during the period of coverage of the policy; and
b) the insured requests the guarantee during the period of coverage of the policy or in the statute of limitations in force;
II – claims-made basis policy: alternative form of liability insurance contract, in which the insurance object is the payment and/or reimbursement of the amounts, respectively, due or paid to third parties, by the insured, in compensation for damage, stipulated by civil court, arbitration or administrative decision, or by agreement approved by the insurer, provided that:
a) the damage occurred during the period of coverage of the policy or during the retroactive period; and
b) the third party submits the claim to the insured:
1. during the period of coverage of the policy; or
2. during the complementary period, when applicable; or
3. during the supplementary period, when applicable;
III – claims-made basis policy, with notifications clause: special type of contract with claims-made basis policy, which provides the insured, exclusively during the policy period of coverage, the possibility to formally register, at the insurer, facts or potentially harmful circumstances covered by the insurance, but not yet claimed, by linking the then current policy to future claims that may be submitted by harmed third parties (if the insured has not registered, at the insurer, the potentially harmful event, and this comes to be claimed in the future by harmed third parties, this will activate the policy that is in force at the occasion of the submission of the claim);
IV – illicit act/harmful act: voluntary action or omission, negligence or imprudence, that violates rights and cause damage to others, even if only a moral damage;
V – (illicit) wrongful action: involuntary actions or omissions which violate rights and cause damage to others, even if only a moral damage, arising from negligence, malpractice or imprudence of the responsible natural person or legal entity;
VI – (illicit) willful misconduct: voluntary actions or omissions that violate rights and/or cause damage to others, even if only a moral damage;
VII – claim advice: act of giving notice to the insurer, in writing, during the period of coverage of the policy or during the Complementary or Supplementary periods, when appropriate, upon occurrence of (a) third party(ies) claim. It is one of the obligations of the insured, provided in all insurance contracts, and it should be done immediately, as soon as the insured is aware of the claim;
VIII - serious misconduct: it is the one that, by its characteristics, is comparable to willful misconduct, and is a reason for loss of rights by the insured. The serious misconduct should be defined by the court or by arbitration;
IX - defense costs: include court costs, attorney and expert fees, and necessary expenses to present, before the appropriate authorities, the defense and/or recourses of the Insureds relating to claims covered by the insurance;
X - retroactivity limit date or retroactive coverage date: date equal to or prior to the effective date of the first of successive and uninterrupted series of claims-made basis policies, to be agreed by the parties at the initial contracting of the insurance;
XI - damage: change of the economic value of goods or expectation of gain of a natural person or legal entity to a lower amount, or violation of their rights, or even in the case of natural persons, injury to the body or the mind or the rights of personality;
XII - bodily injury: any offense caused to the functional normality of the human body, from the anatomical, physiological and/or mental points of view, including illness, temporary or permanent disability, and death; moral damage, aesthetic damage and material damage are not covered by this definition, although in general, such damages can occur in conjunction with bodily injury or as a result thereof;
XIII - physical damage to the person: any offense caused to the functional normality of the human body, from the anatomical and/or physiological points of view, including illness, temporary or permanent disability, and death; moral damage, aesthetic damage and material damage are not covered by this definition, although in general, such damages can occur in conjunction with physical damages to the person or as a result thereof;
XIV - material damage: every change of a tangible or corporeal good that reduces or nullifies its economic value, for example, deterioration, damage, invalidation, destruction, loss or theft thereof; the reduction or elimination of existing financial resources, such as money, credit, and/or securities, which are considered "financial damages” are not comprised by this concept; the reduction or elimination of expected profits or cash gains and/or securities also do not fit in the definition of material damage, but in "financial losses";
XV - moral damage: injury, practiced by others, to the psychic heritage or the dignity of the person, or, more broadly, the rights of personality, causing psychological distress, embarrassment, discomfort, and/or humiliation, independent of the joint occurrence of material, bodly, or aesthetic damage; for legal entities, the moral damage is associated with offenses to one’s name or one’s image, usually generating indirect, non-accounting, financial losses, regardless of the occurrence of other damages;
XVI - property damage: all damage susceptible of objective financial evaluation; it is subdivided into emerging damages, defined as what the asset of the harmed person or entity effectively lost (it covers material damages and financial damages) and in financial losses, they are defined as a reduction or elimination of expected increase in assets;
XVII – triggering event: in the D & O insurance it is regarded as illicit wrongful acts caused by an insured, in the exercise of his functions, and which cause damage to third parties resulting in formal and/or judicial administrative proceedings against the insured, as well as in arbitration proceedings, in order to force him to compensate the affected third parties; the insurance guarantee does not apply in cases that the damage caused to third parties arise from illicit willful misconduct, that is, performed by the insured with proven fraud or serious misconduct;
XVIII - maximum guarantee limit of the policy, (referred to as LMG): it represents the maximum limit of the insurer’s liability, of optional stipulation, applied when a claim or a series of claims arising from the same triggering event, is guaranteed by more than one of the contracted coverages; the LMG of the policy is set to a lower amount than or equal to the sum of the maximum indemnity limits established individually for each contracted coverage; in the event that the sum of the damages arising from the same triggering event, equals or overcomes the LMG, the policy will be canceled;
XIX - maximum indemnity limit for contracted coverage (referred to as LMI): maximum limit of the insurer's liability, by coverage, related to the claim, or series of claims arising from the same triggering event; the maximum indemnity limits established for different coverages are independent, not adding up or communicating with each other;
XX - aggregate limit (referred to as LA): maximum total amount to be indemnified by coverage in the insurance contract, considered as the sum of all indemnities and other costs or expenses related to the claims occurred, having previously been fixed and stipulated as the product of maximum indemnity limit by a factor higher than or equal to one; the aggregate limits established for different coverages are independent, not adding up or communicating with each other;
XXI - notification: specifically in the D & O insurance, in which the notifications clause is contracted, is the act by which the legal entity contracting the insurance (policyholder), or the insured, notify the insurer, in writing, exclusively during the period of coverage of the policy, facts or potentially harmful circumstances, occurred even between the retroactivity limit date, and the end of period of coverage of the policy, which may lead to a claim in the future. The communication of a notification, by the policyholder/insured, will bind the policy in force to future claims of affected third parties;
XXII - loss: reduction or elimination of expectation of gain or profit, not only of money but of goods in general; if that expectation is limited to financial assets, such as cash, credit or securities, the expression "financial losses" shall be used;
XXIII – indemnifiable loss: for the purposes of the definition of the policy’s basic coverage, the items listed below are defined as a indemnifiable loss, when resulting from a relation against the insured covered by the policy:
a) any defense costs;
b) indemnification; or
c) agreements, with the insurer’s previous consent in writing.
XXIV - financial losses: reduction or elimination of the expectation of gain or profit, exclusively of financial assets, such as cash, credit and securities;
XXV - retroactivity period: time interval limited in the lower end by the retroactivity limit date including, and, in the higher end, by the start date of the period of coverage of a claims-made basis policy;
XXVI – complementary period: additional period for the submission of the claims to the insured, by third parties, provided, obligatorily, by the insurer, without charging of any additional premium, beginning on the date of cancellation of the policy or end of the coverage period (in the latter case when there is no continuity of insurance by contracting a new claims-made basis policy);
XXVII - supplementary period: additional period for the submission of claims to the insured, by third parties, provided, obligatorily, by the insurer, upon the optional charging of additional premium, beginning on the end date of the complementary period, and its contracting should be requested by the insured and/or the policyholder, in accordance with the procedures set out in the policy;
XXVIII - damage: material damage or financial damage, that is, injury to material goods, or reduction (elimination) of concrete financial resources; it differs from "loss", which refers to reduction or elimination of an expectation of profit gain or goods in general;
XXIX - financial damage: reduction or elimination of existing financial resources such as credit, cash or securities; it differs from "financial losses" in the sense that these represent the reduction or elimination of an expectation of gain or profit, and not a concrete reduction of financial resources;
XXX - claim: generic name given to notifications (judicial or extrajudicial) that communicate the establishment of formal administrative proceedings, civil action and/or criminal action against an insured, seeking compensation (monetary or otherwise) and/or the civil and/or criminal liability, as a result of the act allegedly harmful, performed by him while in the exercise of his duties at the policyholder; notifications regarding the beginning of arbitration proceedings aimed at evaluating acts performed by the insured in the exercise of their duties are also considered as claims;
XXXI - insured: in the D & O insurance, in the usual sense of the term, are the natural persons which contract or, for the benefit of which, a legal entity contracts the insurance, when these persons, during the period of coverage of the insurance, and/or during the retroactivity period, hold, come to hold, or have held a position of:
a) Director, Officer or Board Member, or any other executive position, for which they have been elected and/or appointed, with the condition that, if legally required, the election and/or appointment has been ratified by competent bodies;
b) management, for which they have been hired, if the legal person is legally solidary in respect of acts and decisions performed by such persons in the exercise of their duties;
XXXII - insured (by extension of coverage): in the D & O insurance, these are natural persons or legal entities that would not fit in the usual sense of the term, but move to the insureds condition due to the fact that the insurance coverage extension has been contracted specifically for those natural persons or legal entities, such as:
a) natural persons who hold, come to hold, or have held the positions described in the preceding paragraph, in the periods indicated, in subsidiaries and/or affiliated companies of the legal entity (company);
b) natural persons who, by virtue of legal provisions, hold, come to hold, or have held, for the periods indicated, management positions in the legal entity and/or its subsidiaries and/or its affiliated companies, such as auditors, trustees, liquidators and/or interveners, among others;
c) natural persons hired by the legal entity or its subsidiaries, or its affiliated companies, or the insureds, to give advice to the latter, of any kind, such as lawyers, consultants, accountants, private secretaries, technicians, among others;
d) legal entity (company), in the cases where it pays amounts in advance, and/or undertakes the commitment of indemnifying persons who hold executive functions and/or management positions, as defined in a proper formal instrument;
XXXIII - company: in this document, the word is used in the sense given by the Brazilian Civil Code (Articles 981-1141); in particular, the company that contracts the D & O insurance for the benefit of the insured is called the policyholder;
XXXIV - subsidiary: company controlled by another company called parent company:
1. subsidiaries of a subsidiary of the parent company are also subsidiaries of the latter; in these cases, the control is considered to be indirect;
2. for the purposes of D & O insurance, the control, direct or indirect, must be established before or at the beginning of the period of coverage of the policy;
XXXV - affiliated company: company in which the investor has significant influence, according to legislation in force.
XXXVI – policyholder of the D & O insurance: is the legal entity that contracts the D & O insurance for the benefit of the insureds and that is responsible, before the insurer, to act on the insureds behalf with respect to the contractual insurance conditions, including the payment of insurance premiums (without cost to the insureds) and, whenever requested, to advance those amounts related to defense in civil court and/or to indemnifications covered by the insurance.
Art. 4th The D & O insurance is a liability insurance, contracted by a legal entity (policyholder), or by a natural person itself, for the benefit of natural persons who hold, come to hold, or have heldmanagement positions and/or executive management position at that legal entity, and/or at its subsidiaries and/or at its affiliated companies, due to appointment, election or employment contract (insureds).
§ 1st The D & O insurance must be contracted as a claims-made basis policy.
§ 2nd The provisions of the regulations in force governing claims-made basis policies are applied, except for:
I – the possibility of transformation of the policy into occurrence basis policy;
II - those that conflict with the provisions of this circular.
§ 3rd Both D & O insurance plans containing the possibility of contract by a legal entity and by natural persons, must have distinct file numbers, corresponding to the respective products electronic records.
Art. 5th In the D & O insurance, the insurer guarantees to the insureds, when liable for the damage caused to third parties as a result of illicit wrongful acts committed in the exercise of duties to which they were appointed, elected and/or hired, the reimbursement of the indemnities that they were required to pay, as a compensation, by a court final judgment, or as a result of arbitration, or by agreement with the affected third parties, with the consent of the insurer.
§1st The guarantee is subject to the provisions of the insurance contract being met, particularly those provisions governing claims-made basis policies, as well as the dates of occurrence of damages and the dates for the submission of claims.
§2nd Instead of reimbursing the insured, the insurer may:
I - offer the possibility of direct payment to damaged third parties;
II - reimburse the policyholder, if he has advanced, to the insured, totally or partially, amounts corresponding to the indemnities covered by this insurance.
§3rd The guarantee may include costs and attorneys' fees of the insureds.
§4th When the guarantee seen on §3rd, above, is granted, the insurer’s right of recourse must be expressly mentioned in the cases where the damages caused to third parties result from a illicit willful misconduct act, or where the insured recognizes its liability.
§5th The guarantee may comprise coverage for fines and civil and administrative penalties imposed to the insureds when exercising their duties, at the policyholder’s and/or at its subsidiaries and/or its affiliated companies.
§6th The guarantee does not cover damages caused to third parties, for which the company was held liable, as a result of illicit wrongful acts committed by natural person who holds, comes to hold, or has held management positions and/or executive management position, unless if additional specific coverage is contracted.
§7th The guarantee prevails up to the maximum indemnity limit (LMI) contracted by the policyholder for each coverage, which collectively applies to all insured persons, respecting their aggregate limits (LA), and, whenever appropriate, the maximum guarantee limit of the policy (LMG).
§8th Insurers cannot act concurrently as policyholder and insurer in D & O insurances covering their own executives, and/or of its subsidiaries and/or of its affiliated companies.
Art. 6th In addition to other exclusions provided for by law, the D & O insurance does not cover the risk of civil liability of the insureds as a result of:
I - damages caused to third parties by the insured, as citizens, when not in the exercise of their positions at the policyholder, and/or its subsidiaries and/or its affiliated companies, a situation which falls into other lines of business - the third-party liability insurance;
II – damages caused to third parties while in the exercise of professional services, out of the exercise of their positions in the policyholder, and/or its subsidiaries and/or its affiliated companies, which are included in another line of business - the professional liability insurance;
III - environmental damage, which are comprised by another line of business, called environmental risks liability insurance.
Sole Paragraph - Damages caused to third parties, for which the company was held liable, as a result of illicit wrongful acts committed by natural person who holds, and/or has held management positions and/or executive, management position, when sold as basic coverage, should be referred to another insurance branch, named Third Party Liability.
Art. 7th The contractual terms of the D & O insurance plans must be presented divided into three parts, called general conditions, special conditions and particular conditions, whose characteristics are:
I - the general conditions meet the common provisions applicable to all basic coverages included in the plan, with the mandatory presence of:
a) provisions provided by specific regulations, including those governing claims-made basis policies; in particular, the terms listed in article 3rd of this circular must be included in the glossary, provided that those terms are applied in the contractual conditions, being admitted the use of definitions equivalent to those set out in the referred article;
b) a clause related to the defense in civil, labor, criminal court and/or administrative and/or arbitration proceedings in which it is clear that the insureds can freely choose their lawyers;
II – the special conditions stipulate the specific provisions of each of the basic coverage present in the plan, possibly inserting changes in the general conditions, with mandatory presence of the main insurance basic coverage, encompassing the Article 5th of this circular, and including persons holding executive and/or administrative positions exclusively at the insurance policyholder, becoming optional the presence of basic coverage that effects the insurance extension to:
a) persons who have held and/or come to hold, exclusively at the policyholder executive and/or management positions to which they have been appointed, elected and/or contracted;
b) persons who hold, come to hold and/or have held, executive functions and/or management positions exclusively at the policyholder’s subsidiaries;
c) persons who hold, come to hold and/or have held, executive functions and/or management positions exclusively in affiliated companies of the policyholder;
d) persons who, for legal reasons, hold, come to hold and/or have held, executive functions and/or administration management positions, at the policyholder and/or its subsidiaries and/or its affiliated companies;
e) persons who hold, come to hold and/or have held, executive functions and/or management positions in subsidiaries acquired or established by the policyholder after the effective date of the first insurance policy;
f) persons who hold, come to hold and/or have held, executive functions and/or management positions in companies, which have become affiliated to the policyholder after the effective date of the first contracted insurance policy;
g) persons who do not qualify as insureds in the above-mentioned coverages, but that advise, have advised, and/or will advise insureds, providing professional services as assistants, consultants and/or technicians;
h) legal entity (company), in the cases where it pays amounts in advance, and/or undertakes the commitment of indemnifying persons who hold executive functions and/or managements positions, as defined in a proper formal instrument;
III - the particular conditions alter the general conditions and/or the special conditions, being classified as additional coverages, specific provisions or particular clauses, according to the nature of the change carried out:
a) the additional coverages cover excluded risks implicitly or explicitly in the general and/or special conditions (e.g. moral damage as excluded risk); the presence of additional coverage to effect the extension of the insurance is optional, guaranteeing the company in case it is sued for damages caused to third parties for unintentional illicit acts committed by the insured, as well as goods of people family and/or legally related to the insureds, such as:
1. heirs, legal representatives and/or estate of the insured that dies;
2. spouse or partner of the insured;
b) the specific clauses alter the provisions of the general conditions, special conditions and/or additional coverage conditions, and requires the presence of specific arbitration clause, according to the law, and, if appropriate, a specific clause related to the option for separate coverage of emergency expenses made by the insureds when trying to avoid and/or mitigate the damages, observing the provisions of the contract;
c) the particular clauses apply to changes made to specific insureds; there is no need for them to be included in the plan submitted to Susep, when it does not reduce the insureds’ rights.
Art. 8th If the contracting of a basic coverage, for technical reasons, requires the prior contracting of a second basic coverage, there should be explicit and highlighted mention to the fact, in special conditions of the first basic coverage, as well as a justification in its technical actuarial note.
Art. 9th If the contracting of an additional coverage, for technical reasons, requires the prior contracting of certain coverages, there should be explicit and highlighted mention to this fact, in the respective contractual conditions, as well as a justification in its technical actuarial note.
Art. 10 For each cover there should be stipulated the existence of a maximum indemnity limit (LMI) and an aggregate limit (LA).
Sole paragraph. It should be noted that the maximum indemnity limits (LMI) and their aggregate limits (LA), do not add up or communicate with each other.
Art. 11. It is optional to establish, in the D & O insurance plans, a maximum guarantee limit of the policy (LMG).
Art. 12. References to any foreign law are prohibited when the territorial scope of the policy coverage is the Brazilian national territory.
§1st Reference to foreign legislations will be allowed, in case the territorial scope of the coverage is extended to international jurisdictions.
§2nd Use of foreign expressions relating to D & O insurance is allowed if usually applied in the Brazilian insurance market, provided that they are locally translated or the respective translation is contained in the insurance glossary.
Art. 13. Insurers must not sell new D & O insurance contracts which are non compliant with the provisions of this Circular after 180 (one hundred and eighty) days as of the date of its publication.
§1st Plans currently being sold, which are non compliant with the provisions of this Circular, must be replaced by new plans, already adapted to this Circular, until the date mentioned in the head of this article, by means of a new administrative process.
§2nd After the date mentioned in the head of this article, all D & O insurance plans whose respective administrative processes have initiated on a date prior to the date of the publication of this Circular will be automatically closed and filed.
§3rd As of the date of publication of this Circular, new plans submitted to Susep for analysis will have to be already adapted to its provisions.
§4th Contracts in force on the date of publication of this document, whose termination date occur:
a) before the date established in the head of this article, may be renewed, only once, for the maximum period of 1 (one) year time;
b) after the date established in the head of this article, will only remain in force until the end of their coverage periods, and cannot be renewed.
§5th In case the above mentioned contracts use claims-made basis policies, provisions related to the concession of complementary and supplementary period will apply at the end of the period of coverage, subject to the possibility of non-renewal, stipulated in the rules that govern those policies.
§6th New D & O insurances, meeting the provisions of this circular, and replacing, in the same insurer, the contracts mentioned in the second paragraph, above, shall adopt the date of retroactivity of the replaced insurances, being optional to the party contracting the insurance policy:
a) to opt for a later date of retroactivity; or
b) to consent with an earlier date of retroactivity, offered by the insurer.
Art. 14. This circular shall enter into force on the date of its publication, being revoked Circulars Susep nº 541, of 14 October 2016, and nº 546, 23 February 2017.
JOAQUIM MENDANHA DE ATAÍDES
Superintendent
(Official Gazette DOU of 24 may 2017 – pages 32 to 34 – Section1)
(*) The information provided in this publication is general and may not apply to a specific situation or person. Every effort has been made to ensure that matters of concern to readers are covered. Although the information provided is accurate, be advised that this is a developing area. The information contained herein is not intended to be relied upon or to be a substitute for legal advice in relation to particular circumstances. Specific legal advice should always be sought from experienced local advisers. Accordingly, Editora Roncarati accepts no liability for any loss that may arise from reliance upon this publication or the information it contains.
