D&O – When the insurance company has to pay thanks to the BGH

In a decision from November 2020, the German Federal Court of Justice (“Bundesgerichtshof“, “BGH“) explicitly opposed the view predominantly held by the Higher Regional Court Düsseldorf (most recently still: OLG Düsseldorf, judgment 26.06.2020 – 4 U 134/18, in German) and classified the claim for damages against the managing director pursuant to § 64 Sentence 1 GmbHG (German Act on Limited Liability Companies) as a statutory liability claim for damages within the meaning of the insurance conditions.

With this ruling, the BGH ends with a stroke of the pen an uncertainty that has existed for managing directors since the first ruling in this regard by the Düsseldorf Higher Regional Court in 2018, according to which the liability claim under company law (precisely under § 64 GmbHG) is a “claim for compensation of its own kind” that is not comparable with the insured claim for damages (see here for more details, in German).

In its reasoning, the BGH clearly states that for an “average policyholder [i.e., a policyholder/insured of a D&O insurance policy who is experienced in business and familiar with the general terms and conditions] who makes an intelligent assessment, carefully reads the text and takes into account the recognizable context, the claim governed by § 64 Sentence 1 GmbHG is a conditional statutory liability claim for damages.

Consequently, the previous decisions of the Düsseldorf Higher Regional Court on this subject are now only of legal historical interest. In view of the fact that the relevant insurers now handle the issuance of such policies restrictively, however, the question arises as to whether this legal success is not more like a Pyrrhic victory in practice – because where there is no insurance, there is no protection.

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