German decision on D&O insurance in insolvencies

According to the German Act on Limited Liability Companies, a managing director is personally liable for payments that have been made despite insolvency. In this case the managing director of a company had been successfully held liable by the company’s insolvency administrator since the company had executed payments during insolvency. The insolvency administrator successfully obtained a court order against the managing director who, in turn, notified her D&O insurance and demanded an exemption regarding this claim. Her action was unsuccessful and she appealed proceedings before the Higher Regional Court in Dusseldorf.

However, her appeal was dismissed based on the following statements by the court of appeal:

• In the court’s view such a claim is not covered by the insurance contract.
• The liability claim is not comparable with typically insured claims for damages due to pecuniary loss. The claim is a "right of its own kind" which serves solely the interests of the creditors of an insolvent company and not the company’s interests as covered by D&O insurance.
• D&O insurance is not designed to protect the interests of creditors and thus could not cover such claims resulting from such circumstances.

Practical relevance

The ruling should have great practical significance for managers of companies, insolvency administrators, insurance brokers and industrial insurers. Managing directors must now pay even more attention to avoid payments which lead to a liability. It is therefore to be expected that managing directors will have increased need for advice with regard to such claims against them.

Case: I-4 U 93/16