It is no longer a rarity for companies to want to hold their boards of directors and supervisory boards liable. It is often the case that claims are asserted arising from D&O insurance.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: It is no longer unusual for companies to hold their boards of directors and supervisory boards liable and assert claims against them for management shortcomings if the company is asked to pay up, e.g. in response to damages claims. Petty cash is not normally sufficient to pay for these claims. For this reason, a lot of companies take out a D&O (directors & officers) insurance policy for their executive bodies as a way of mitigating the financial risk.
However, enforcing claims against the D&O insurer is not always a simple matter. Aside from the fact that it is common for the policy not to cover all claims, it is also possible for the insurer to refuse to bear the costs. One argument that is made here is that the company does not seriously intend to sue its executive bodies; instead, this only happens in order to be able to “tap into” the D&O insurance policy. Notwithstanding this, the Bundesgerichtshof (BGH), Germany’s Federal Court of Justice, has strengthened the position of policyholders with two of its rulings (IV ZR 304/13 and IV ZR 51/14). According to the judges, the seriousness with which a claim is brought does not constitute a required element of an insurance claim. The Court also held that it is possible for the insured managers to cede their claims arising from the D&O insurance policy directly to their employers, with the result that the company’s claims can be directly asserted against the insurance company.
In principle, it is important when taking out a D&O insurance policy to ensure that the policy is tailored to the specific risks associated with the company and its executive bodies. In doing so, one ought to be particularly mindful of the level of coverage, retroactive coverage as well as coverage for follow-up liability.
Lawyers who are experienced in the field of company law can offer advice when taking out D&O insurance and enforcing claims if legal disputes emerge with the insurer in the event of a claim being raised.
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