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GRP Rainer Rechtsanwälte – Experience dealing with claims relating to D&O insurance

April 2019 - Corporate & Commercial. Legal Developments by GRP Rainer LLP.

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In recent times, public pressure has continued to mount on managers in cases involving claims arising from damage or loss. Governing bodies and executives can insure themselves against the risk of liability by taking out a D&O insurance policy.

Managers, boards of directors, managing directors as well as other governing bodies and executives bear a great deal of responsibility and are subject to ever-increasing pressure when claims arising from damage or loss emerge. Mere negligence may see managers facing personal liability and damages claims. To reduce the risk of personal liability, many companies take out a D&O (directors and officers) insurance policy for their governing bodies and executives. Of course, there is always the possibility that the insurer will not want to stand good for the damage or loss cited in a claim. In our experience at the commercial law firm GRP Rainer Rechtsanwälte, this appears to be particularly common in cases involving internal liability, thus making it all the more important to tailor the D&O insurance policy to the specific risks faced by the manager(s) in question.

As you would expect, D&O insurance ought to cover damage or loss in cases involving external liability where claims are brought by third parties. However, it should also give rise to an obligation to cover cases dealing with internal liability. Yet time and time again we see problems arise when the manager directly assigns his or her right of indemnity in relation to the insurer to the aggrieved company. The insurance company will then often argue that any claim brought by the company against the manager is not serious and instead intended only to give rise to an event covered by the insurance policy.

The Bundesgerichtshof (BGH), Germany’s Federal Supreme Court, has since bolstered the position of policyholders in this regard. The BGH held that insured managers are allowed to directly assign their right of indemnity to the aggrieved company and that the latter can then directly assert its claims against the D&O insurer. The seriousness of the claims was said not to be relevant; written recourse by the manager is sufficient to give rise to an insured event (Az.: IV ZR 304/13 and IV ZR 51/14).

A word of caution is nonetheless in order if governing bodies or executives go on to make payments following the onset of insolvency. According to a ruling from June 20, 2018 of the Oberlandesgericht Düsseldorf, the Higher Regional Court of Düsseldorf, D&O insurance companies are not obliged to pay out if unlawful payments were made after the onset of insolvency (Az.: I-4 U 93/16).

This ruling may result in significant gaps in the coverage provided by D&O insurance policies. These ought to be reviewed in appropriate cases. Lawyers with experience in the field of company law can advise businesses and managers alike.

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