Growing interest in formal governance within family-owned businesses has brought a little-discussed instrument into the debate. Attorney Rodrigo Pimentel highlights the role of directors’ and officers’ liability insurance in protecting the personal assets of those who make decisions. Board members and executives may be held personally liable with their own assets under circumstances established by law.
This exposure exists even when the company is performing well. Tax assessments involving personal liability, labor lawsuits seeking to include an administrator as a defendant, environmental disputes, and claims brought by minority shareholders can all affect those who signed off on a decision. The policy covers legal defense costs and potential judgments within the limits of the contract. In lengthy proceedings, defense costs often exceed the amount at stake in the lawsuit itself.
What Does the Policy Cover and Exclude?
Typical coverage includes defense costs, settlements, and damages arising from management decisions. Exclusions are equally important. Proven intentional misconduct, illicit enrichment, criminal penalties, and acts committed before the policy’s effective date are generally excluded. Understanding these exceptions determines the actual value of the protection. A policy purchased based on price alone, without reviewing its wording, offers less protection than the family may assume.
As Dr. Rodrigo Gonçalves Pimentel, a specialist in international wealth structuring, explains, the policy does not replace diligent conduct, since intentional misconduct voids coverage. Insurance protects an administrator who makes a mistake while performing their duties in the ordinary course of their role, not someone who deliberately acts against the law.
Why Do Family Businesses Need This Instrument More?
A board with an external member only works if the invited professional agrees to join. Experienced professionals assess their personal liability exposure before signing an appointment agreement, and the absence of a policy often makes the desired board composition unfeasible. A company seeking qualified board members must provide appropriate protection, because prospective members weigh the proposed compensation against the financial risk they assume by accepting the position.
According to Rodrigo Pimentel, an heir who assumes an executive position becomes subject to the responsibilities of a company administrator, a status distinct from that of a shareholder. Equity ownership does not, by itself, create personal liability for management decisions, whereas an executive position does.
How Is the Policy Structured?
Coverage limits, retroactive dates, extended reporting periods for subsequent claims, and coverage for directors and officers of subsidiaries are among the key points in negotiations. The advisory and strategic work of attorney Sideni Soncini Pimentel, a member of Pimentel & Mochi Advogados Associados, includes reviewing instruments of this kind, in which the scope of coverage is determined by contractual details that may not be readily apparent in the commercial proposal.
As Rodrigo Gonçalves Pimentel explains, the selected coverage limit must reflect the size of the potential liabilities rather than the company’s revenue. A medium-sized company operating in a regulated industry may face greater exposure than a larger company in a lower-risk sector.
The Policy’s Impact on Wealth Succession
Enforcement proceedings against a deceased administrator can reach the estate and delay the distribution of assets among heirs. Coverage in force at the time of the relevant act reduces the likelihood that the estate will face a judgment the family had not anticipated. At this point, protection extends beyond corporate risk and becomes part of succession planning, preserving the liquidity heirs would otherwise use to pay taxes associated with the transfer of assets.
According to Rodrigo Pimentel’s assessment, annual policy renewals warrant a review of coverage limits and scope because a company’s structure changes over time. The addition of a subsidiary, entry into a regulated market, or establishment of a fiscal council can alter the company’s exposure and require adjustments to the existing policy.
About the Experts
Rodrigo Gonçalves Pimentel is an attorney, entrepreneur, and partner at Pimentel & Mochi Advogados Associados. His practice involves corporate, wealth, shareholder, and succession matters affecting entrepreneurs and business-owning families.
Sideni Soncini Pimentel is an attorney, retired appellate judge, and member of Pimentel & Mochi Advogados Associados. After a career spanning more than four decades on the bench, he began a new professional chapter in legal practice, focusing on advisory and strategic work.
