Management liability: D&O insurance also has to pay in the event of insolvency.

 D&O insurance also covers claims against GmbH managing directors.

Management liability: D&O insurance also has to pay in the event of insolvency.

The German Federal Court of Justice (BGH) has issued a detailed statement (decision dated November 18, 2020, IV ZR 2017/19) regarding the issue of whether claims on the part of the GmbH against managing directors exist. Specifically, the case concerned the compensation for payments to be reimbursed by D&O insurance after the occurrence of grounds for insolvency.

The case:

The managing director of a GmbH had made various payments despite the fact that grounds for insolvency existed. As a consequence, the insolvency administrator of the GmbH filed a claim for compensation for these damages. The managing director’s company had taken out D&O insurance. The insolvency administrator of the GmbH and the insurance company then disputed whether or not the D&O insurance was liable for compensation claims according to Section 64 Sentence 1 of the German Limited Liability Companies Act (GmbHG).

The BGH stated that these claims must be compensated by the D&O insurance. According to the BGH, this is based on the “General Insurance Conditions for Financial Loss Liability Insurance for Company Managers and Senior Executives” (ULLA). The BGH derived primarily this position from a detailed interpretation of the fundamental insurance clauses from the perspective of an average policyholder attempting to understand these clauses. In the process, the court resolved a previously disputed legal issue.

Stress despite insurance?

Unfortunately, hardly an isolated case. Despite a comprehensive insurance policy, the insurer rejects any liability. In addition to the stress that generally accompanies insolvency, the former managing director as then also confronted with claims. These claims can potentially endanger or even destroy the managing director’s private financial foundation. This question of the D&O insurance company’s duty to compensate claims pursuant to Section 64 sentence 1 GmbHG was long disputed by the courts and different rulings were made. The BGH has now clarified the issue.

Decision of the BGH applies to GmbH managing directors and members of the AG management board

The decision of the BGH applies to the management boards of publicly traded companies (Section 92 (2) AktG) and also to managing directors of limited liability companies.

Practical tip:

The decision by the BGH is a major relief for managing directors and board members. Nevertheless, board members and managing directors covered by a D&O insurance policy should ensure that the policies are reviewed in detail. In particular, this also applies when concluding new contracts, as it is safe to assume that insurance companies will now seek another way out of their obligation to indemnify.

If you have any questions, please feel free to contact us.

You can find more details about this issue and other liability cases or D&O options on my YouTube channel “Recht hat er!”.