In cases where damage or injury has occurred, it is increasingly common for the issue of D&O liability to take centre stage. For this reason, many companies have taken out a D&O insurance policy for their managers.
Besides a great deal of responsibility, a company”s governing bodies also bear a high risk of personal liability. Mere negligence can be sufficient to give rise to both internal as well as external liability on the part of boards of directors, supervisory boards or managing directors. To reduce their managers” risk of personal liability, a lot of companies therefore decide to take out a D&O (directors and officers) insurance policy for their governing bodies and executive employees. According to a report by the commercial law firm GRP Rainer Rechtsanwälte, D&O insurance should always be tailored to the individual risks faced by managers to ensure that the coverage actually kicks in.
A common point of contention here is when the governing bodies cede their right of indemnity vis-à-vis the D&O insurer directly to the company. What has often happened in these cases is that the insurance company has not wanted to stand good. They argue that the companies do not intend to make a serious claim on their governing bodies but instead are only after the insured sum.
On this issue, the Bundesgerichtshof (BGH), Germany”s Federal Supreme Court, has bolstered the rights of policyholders substantially with two ground-breaking judgments (Az.: IV ZR 304/13 and IV ZR 51/14). In doing so, the BGH established that the seriousness with which a claim is brought is not a prerequisite for coverage kicking in if an insured eventuality occurs. Instead, the decisive factor was said to be the manger making the claim in written form. Moreover, the Court held that it is acceptable for the governing bodies to assign their right of indemnity to the company that makes a claim against them. Accordingly, ceding the right of indemnity to the aggrieved company did not constitute conduct amounting to a violation of contract. The aggrieved company can thus directly assert its claims against the D&O insurer.
When taking out a D&O insurance policy, one should therefore always make sure that the managers” individual liability risks are optimally covered. A key issue here is ensuring coverage of the risk of both internal and external liability on the part of governing bodies. Other essential factors include, e.g. the extent of the insured sum as well as the issues of retroactive coverage and cover for follow-up liability.
Lawyers who are experienced in the field of company law can offer advice when taking out D&O insurance and enforce claims against the insurer.