In this blog, we have dedicated numerous in-depth articles to the main risks that entrepreneurs face every day, such as industrial warehouse fires, pollution of the areas surrounding the production site, catastrophic events, claims for compensation due to product defects, accidents and illnesses in the workplace, and food contamination.
In addition to these very serious threats, there is also the personal financial liability of company directors.
In this article, we provide an update on the new risks arising from violations of international customs regulations, environmental pollution, and food contamination for companies that export or have internationalized their business through direct production investments across borders.
Insuring yourself is good, but analyzing risks and prevention is even better.
Finding ourselves holding the bag because our director or one of our sales managers violates the law or makes a serious mistake, even in good faith, can cost us dearly.
On the one hand, European law provides for personal civil liability on the part of company managers, and on the other, lawyers cost a fortune.
This is why taking timely precautions—through prevention and purchasing high insurance coverage—is absolutely essential if, as administrators, we do not want to spend our precious time in court, especially if it is a foreign court, and pay legal fees and damages to third parties out of our own pockets.
Below, we answer some of the most frequently asked questions our clients ask us about how to prevent risks before a large claim for compensation comes knocking on their door.
In what cases is a personal liability insurance policy for directors truly indispensable?
In my personal opinion, insurance policies are mainly used to cover large claims.
Think of a serious accident at work or severe pollution of the areas surrounding the production site.
In such cases, if the directors have not taken the necessary measures to prevent these accidents, they may be held personally liable with their own assets.
Statistics on the all-too-frequent accidents at work are now well known, unlike those concerning environmental damage, which is still greatly underestimated, especially when it results from serious negligence on the part of third-party companies to whom we have entrusted the disposal of, for example, industrial oils or toxic or hazardous waste.
In the event of a spill of these hazardous substances into the environment, a judge may declare us jointly liable for failing to adequately supervise the remediation and disposal work.
We understand how important this insurance is to protect company management: with adequate coverage limits, we can cover legal expenses and third-party damages, which can reach very high amounts.
How can we reduce the risk of environmental damage?
Purchasing a policy to protect the personal assets of executives is certainly advisable, but it is equally important to take preventive measures to reduce the likelihood of such damage occurring.
First of all, we suggest identifying the possible causes and the scenario with the worst financial consequences through a technical visit to the company by expert insurance consultants.
Next, we recommend performing routine and extraordinary maintenance on the systems, updating the procedures for the storage and disposal of toxic substances, and checking the condition and integrity of underground or above-ground containment basins.
To facilitate these requirements, the reference standard UNI/PdR 107:2021 “Guidelines for the prevention of environmental damage – Technical criteria for effective environmental risk management” has been in force since 2021.
This is a comprehensive handbook to be kept in mind in order to ensure more effective and timely prevention of environmental damage in specific risk scenarios applicable to manufacturing companies, depots and warehouses, logistics and storage centers.
What risks does a company director face in the event of a violation of customs regulations?
The subject is very complex and constantly evolving.
In a nutshell, companies accustomed to operating in markets where sanctions are in force are exposed to serious new risks, especially in the US, for the following reasons.
Rapid global changes and the uncertainties that follow the constant back-and-forth of tariffs being applied and then withdrawn can lead to serious errors in good faith on the part of company administrative staff dealing with export procedures in that country.
We must also take into account the not insignificant difficulties in interpretation faced by entrepreneurs in clearly understanding international customs law, especially when it comes to classifying and analyzing individual goods for export, universal reciprocal tariffs, and agreements bound for years to a contractual regime that we thought was immutable (read Boeing!).
Violation of international regulations—think of the incorporation of a Chinese product into one of our products destined for the US market—can lead to serious consequences such as fines, freezing of assets, and blocking of goods at customs, thus putting the company’s reputation at risk and limiting opportunities to continue exporting.
In the event of a customs law violation, a director may risk being held personally liable to the company and third-party suppliers for failing to set up and follow an organizational and management model designed specifically to avoid such errors.
This is where insurance to protect the personal assets of directors can be used for the advance payment of legal fees to defend managers who are unaware that their lack of diligence, which can happen to anyone, has exposed the company to customs violations.
But be careful: it is absolutely essential to check the insured expenditure limits carefully because, if we are involved in a dispute in the US, a country with a very high rate of litigation, €100,000 in legal fees paid by the insurance company may only be enough for the first few hearings. If the lawsuit drags on for several years, the headaches begin, if you know what I mean.
From experience, I can confirm that the wording of insurance policies in force abroad can vary depending on both the international insurance company providing the cover and the jurisdiction abroad where the policy was paid for, and must be carefully analyzed by insurance consultants familiar with foreign markets, often assisted by lawyers specializing in international insurance law.
Repetiva iuvant: the US is a highly litigious country, and we insurance consultants break out in a cold sweat, pardon the expression, when clients ask us to go to the market to find a policy against the risks of defects in products exported to that country.
Not to mention when it comes to asking the insurance company to provide coverage of several million euros to protect against mistakes that managers may make in violation of the new rules on international customs.
Further details will follow in the coming weeks.
In the event of consumer poisoning and product recall, do company directors personally risk?
First of all, it is necessary to understand exactly where the flaw occurred along the food supply chain.
To be more clear, there are two cases.
If it is proven in court that the contamination occurred within the production site, the plant manager can certainly be called upon by the authorities to account for his actions and those of his technicians and employees, and to respond personally in the event of gross negligence.
On the other hand, it may be that the contamination occurred outside the production premises, i.e., during the receipt of the contaminated agricultural product, transport, storage, and warehousing of the food until the final moment of consumption of the product in a restaurant.
The chart below clearly illustrates how microtoxins, substances that are toxic to the body, can develop both as a result of agricultural runoff and during the production, processing, and storage of food products.
The defense, expert witness, and investigation costs paid by this insurance serve precisely to shed light on possible production and distribution deficiencies and to exonerate the managers of the production company if, based on expert reports, it is proven that the contamination did not occur at the company but at a farmer, supplier/distributor/restaurant.
Claims against managers can be very high: how much should the maximum compensation limits in the policy be?
It depends on numerous factors, and things get complicated when companies internationalize their business abroad with direct investments.
To be clear, if the company is run by a single entrepreneur who acts as administrator and plant manager across the border, a limit of €500,000 may be sufficient.
However, if we are dealing with companies with multiple plants in different countries—one in Italy, a production branch abroad—the more directors and managers with management duties across the border, the higher the probability that their mistake, made in good faith, could expose the directors in Italy to paying for a serious mistake committed in a different jurisdiction, with all the consequences that this entails in terms of legal matters and the interpretation of foreign law!
This is why having limits of over €1 million makes perfect sense, ensuring that multiple claims in a single year do not use up the policy limit in one fell swoop!
To be clear: a serious accident at work occurs in a company abroad and we discover that our policy has sub-limits of coverage for claims arising from accidents in the company.
It is obvious that two large claims of this type during the year will quickly burn through, if I may use the term, €500,000 of the limit, with obvious repercussions on the company’s finances.
Company directors abroad must not forget that damage to third parties and legal costs are either covered by large policy limits or, if the insured limit is eroded by one or more major claims in a year, it is up to the company to choose whether to come to the aid of its director by paying the legal fees or to leave him to bear the very high costs of defense and the payment of a life annuity to his family in the event of the death of a worker.
In the event of a conviction, are extradition costs insured?
In general, they are, but not all policy texts are identical and clauses may vary from country to country.
This is a very sensitive issue and should be discussed with company executives in the strictest confidence.
We always recommend seeking the assistance of competent insurance advisors who are familiar with the foreign territory where our company is located and who can give us sound advice, given that policy texts are written in a foreign language that is difficult to interpret.
Internationalization: when ex works is not enough… risk analysis and reduction, prevention, insurance coverage.
In this blog, we have dedicated numerous articles to the very high risks that managers, plant managers, and company directors face every day, especially when they internationalize their business, exporting or managing production abroad.
The analysis of compliance risks, international clauses, and insurance policy limits remain absolutely essential tools for containing risks and reducing the possibility that a major accident or a large claim will involve managers, putting their personal assets at risk.