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06 June 2017
Relevance for insurers
Liability of D&Os
On May 15 2017 the Joint Divisions of the Supreme Court issued a decision (119831/17) that further clarified the Court of Auditors' jurisdiction compared with that of the civil courts regarding the liability of directors and officers (D&Os) of companies held in whole or in part by public entities.
The matter is relevant for insurers that underwrite D&O-related risks and need to assess the insured's exposure and determine:
Procedural and substantive rules governing actions before the Court of Auditors and relevant liability are partially different from those governing actions before civil courts for breach of fiduciary duties or duties of skill and care.
In the first case, the quantum of damages may be reduced significantly by the court according to its discretionary power considering the behaviour of the defendant and the fact that the insurers cannot be added to the relevant action. In the second case, damages must be determined strictly by the application of the causal link between the wrongful action and the actual consequences thereof, with substantially no discretionary powers on the part of the court.
Following a long period of uncertainty, the law was amended to specify that D&Os of public stock companies are always subject to the jurisdiction of the civil courts, regardless of whether their capital is directly or indirectly in the hands of public entities (Decree-Law 248/1997 and Law 31/2008).
Further, the Joint Divisions of the Supreme Court contributed to the debate through various decisions (eg, Decisions 20941/2011, 10299/2013 and 21692/2016) which held that the damages caused by D&Os of publicly held companies are generally to be assessed by the civil courts under the standard rules governing the liabilities of private limited liability companies' D&Os, while the jurisdiction of the Court of Auditors should be residual. For instance, the Court of Auditors' jurisdiction still exists where the D&Os of publicly held companies have caused reputational damages against the state or failed to exercise the powers directly attributed to them by the public shareholder.
The Court of Auditors' jurisdiction has been affirmed regarding the D&Os of certain in-house companies – that is, companies established under the standard rules of company law:
In apparent contrast with the rulings rendered so far with reference to in-house companies, the Joint Divisions of the Supreme Court ruled that D&Os of railway companies established in the form of limited liability companies held in whole or in part by public entities are subject to the jurisdiction of the civil courts on the grounds that:
For further information on this topic please contact David Maria Marino at DLA Piper Italy by telephone (+39 02 80 61 81) or email (firstname.lastname@example.org). The DLA Piper website can be accessed at www.dlapiper.com.
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