Court: D&O Insurance May Not Cover All Director Liabilities

A German appellate court has issued a significant ruling clarifying the scope of Directors and Officers (D&O) liability insurance in insolvency situations. The judgment addresses potential gaps in coverage for company directors.

The Higher Regional Court (OLG) Düsseldorf determined that D&O insurance policies do not necessarily cover liabilities incurred by directors for payments made after a company reaches a state of insolvency or over-indebtedness. This decision stems from a case where a director was personally held liable.

In the specific case, the insolvency administrator of a limited liability company (GmbH) successfully sued the company's managing director for €200,000. The director sought coverage from their D&O insurance, but the insurer denied the claim. The court concluded that the claim was not a 'damage claim' typically covered by D&O policies, but rather a distinct type of 'reimbursement claim' not included under the policy terms.

This ruling aligns with the prevailing legal opinion in Germany. It highlights a critical point for company directors: D&O insurance is not a universal safeguard. Directors are advised to thoroughly review their specific policy terms and conditions, ideally with legal counsel, to ensure adequate protection against potential personal liabilities, especially in financial distress scenarios. Failure to do so could leave directors exposed to significant financial risks not covered by their insurance.