Fault separable from corporate duties

A fault separable from corporate duties is the fault that allows a claimant outside the company to hold a director personally liable: an intentional fault of particular gravity. The commercial chamber of the Cour de cassation set the test in the Seusse ruling (Cass. com., May 20, 2003). A director can be held personally liable to third parties only for a fault separable from his duties. That is the case where he intentionally commits a fault of particular gravity incompatible with the normal exercise of corporate office. The gérant of a SARL (société à responsabilité limitée) had assigned to a supplier, in payment for deliveries of materials, two receivables she had already assigned to a bank. The formula has held for more than twenty years. It sets three cumulative requirements, and the third does the sorting. A director who gets it wrong, even badly, while acting for the company, binds the company and not himself. The injured third party, supplier, customer, counterparty, therefore goes after the legal entity first. The commercial chamber later accepted (Cass. com., September 28, 2010, no. 09-66.255) that an intentional criminal offense amounts to a separable fault. That opens the door wide again in white-collar crime cases. For D&O (directors and officers) cover, the ruling cuts the frequency of third-party claims against directors personally. It shifts exposure toward derivative actions, asset shortfall actions and investigations. It also causes a wording problem. An intentional fault in the Seusse sense is not the intentional fault of article L. 113-1 of the Insurance Code, which requires intent to cause the damage as it occurred. A director held liable on Seusse grounds can therefore remain covered, subject to the conduct exclusion and how it is drafted.