D&O insurance (Directors & Officers insurance) are interesting for GmbHs who want a liability protection for their bodies such as managing directors. In particular, the D&O insurance should be used in the event of wrong decisions by the management, ideally both the company itself and any third parties should benefit from the protection. But the reality is often different. In practice, many aspects of the D&O insurance contract prove to be an exclusion criterion with which the insurance company can refuse the service. Especially in the case of insolvency, the criteria that actually lead to a service by the insurance are very limited. In addition, only society or its organs are protected, but not third parties. So how useful is a D&O insurance really?

1st General about D&O insurance

In the context of corporate insolvencies, managing director liability is always the focus of insolvency administrators. The liability risks for the managing directors are manifold and often not known in the approach and manageable, especially when the board takes office on the part of the management. [1]

In order to cover the risks for the management at the private level, sometimes very expensive so-called D&O insurances are taken out. In practice, however, especially in the case of corporate insolvencies, constellations crystallize again and again, in which an insurance protection envisaged by the managing director is actually not given.

Without wanting to go into the details of the different insurance policies, the article should take up critical aspects, which must be regularly noted in practice.

2.1.1. Liability of the GmbH Managing Director according to the law

The central standard for the use of managing directors from the point of view of insolvency law is § 64 GmbHG, which sets a personal liability of the managing director due to payments made after insolvency. The provision of § 64 GmbHG constitutes one of the most effective and frequent instruments for insolvency administrators to make use of management on a private level.

2.1.2. The legal situation regarding D&O insurance from a judicial point of view

In the opinion of the Senate, the asserted claim is already in principle not a claim covered by the insurance contract. The liability claim according to § 64 GmbHG is not comparable with the insured claim for damages due to damage to property. Rather, it was a ‘reimbursement claim of its own kind’ which served solely the interest of the creditor population of an insolvent company.

Finally, the company does not suffer any damage to assets due to the insolvency-infringing payments after maturity, since an existing claim will be paid. The payment to preferred creditors has a disadvantageous effect only on the other creditors. However, the insurance is not designed to protect the interests of creditors.

In addition, the liability claim according to § 64 GmbHG is not comparable with that of a claim for damages, since various objections, which could be raised in the damages right, are not provided for in § 64 GmbHG. Thus, liability according to § 64 GmbHG could not be held against, the distressed company had incurred no or only minor damage.

It is also not possible to invoke a joint fault or a possible total debt of several acting persons. If a D&O insurance company had to stand here, its defense options would be very limited compared to a claim for damages.

2.2 Legal assessment

In addition to the problematized questions in the context of the OLG decision, there are also (insurance) peculiarities to which he must pay attention in the context of advising GmbH managing directors and point out to clients:

2.2.1. Contractual exclusion of cover in case of insolvency

The number of insurance policies that exclude insurance coverage in the event of corporate insolvency has risen significantly recently due to the risk known to the insurance companies.

For example, it says:

“The insurance cover does not extend to claims for compensation for payments made after insolvency or over-indebtedness, e.g. § 64 S. 1 GmbHG, and for criminal proceedings for delay in insolvency.”

This contractually excludes the typical problem areas of management in insolvency.

2.2.2. Special features of the "Claims-Made" principle for D&O insurance

It should also be noted that in the context of D&O insurance, unlike in the case of other types of insurance, the so-called Anglo-American legal system, i.e. The Claims Made Principle.

This leads to the peculiarity that, in terms of insurance coverage, it is not the circumstance causing the damage that is relevant in time, but rather the time when the Managing Director is called upon.

As a result, the insurance cover ends with the termination of the D&O insurance, even if the breach of duty and the damage fall within the term of the contract.

In practice, however, it can be stated that the D&O insurance, which is covered by the company, can often no longer be continued by the company concerned in the event of a corporate crisis or subsequent insolvency for financial reasons, so that at the time of use by the insolvency administrator there is no insurance coverage due to the “claims made principle”.

According to the case law of the BGH of 14.04.2016[3], the insolvency administrator has no obligation to maintain a D&O insurance against the insured managing director.

2.2.3. Different limitations of insolvency and insurance nature

Finally, there may be a legal challenge in practice that the insurance cover generally expires after three years. In contrast, e.g. the claim against the managing director under § 64 GmbHG only after five years from breach of duty (§ 64 S. 4 in accordance with § 43 Abs.). 4 GmbHG.

As a result, in order to safeguard its protection under insurance law, the managing director may have to sue against D&O insurance in advance, without the insolvency administrator having made a legal claim against him, which is not yet statute-barred from the point of view of insolvency law.

3. impact on practice

Company managers are exposed to significant risks. In addition, the liability risk of private use is increased in cases where the company goes into insolvency. Especially here it is important to optimize the liability protection of the managing director in order to avoid a private, in the worst case existentially endangering liability.