Today D&O is a promising insurance product in China. My views are based on the newly revised Chinese Company Law and Securities Law of 2005. Section 3 of Article 113 of the 2005 Company Law stipulates "Directors shall be responsible for resolutions passed by the board of directors. If a resolution of the board violates the law, administrative regulations or the articles of association of the company and thus causes serious losses to the company, the directors who participated in the adoption of such a resolution shall be liable for compensation to the company. However, if a director is proved to have expressed his objection to such a resolution when it was put to the vote and his objection was recorded in the minutes of the meeting, he may be exempted from such liability".
Article 150 of this law clarifies the Directors’ personal liability to the third person, "Where any director, supervisor or senior manager violates laws, administrative regulations or the articles of association during the course of performing his duties, if any loss is caused to the company, he shall make compensation", Article 152 of the Company Law stipulates the Shareholder’s Derivative Suit, which states if the directors or senior officers or supervisors of the company fall under the circumstance of Article 152, shareholders may be eligible to sue directly against directors or officers in court. Article 69 of the Securities Law of PRC stipulates "any director, supervisor, senior manager or any other person of the issuer or the listed company directly responsible shall be subject to the joint and several liabilities of compensation, except for anyone who is able to prove his exemption of any fault. Where any shareholder or actual controller of an issuer or a listed company has any fault, he shall be subject to the joint and several liabilities of compensation together with the relevant issuer or listed company".
Today, there are approximately 1,100 domestically listed companies. If 10% of them purchase D&O, there is great potential for further development of D&O in China. According to recent media reports, China CITIC bank, China Life Insurance, China West Mining, China Shipping Development have decided to purchase D&O and in 2008, Ping An and Industrial and Commercial Bank of China renewed their D&O insurance.
In general, the Chinese government has taken significant strides towards a achieving a system which adheres to the rule of law. On this basis, it is my belief, this attitude will continue to encourage the development and emergence of new insurance products within China’s borders.