Manager liability cases can give rise to questions regarding D&O insurance cover (see the blog post from 26.03.2024)[1]. Two recent decisions by the Higher Regional Court of Cologne and the Higher Regional Court of Schleswig 2) address such questions. They mainly deal with (i) the definition of an "insured event", (ii) the consequences of an assignment of coverage claims from the insured manager to the policyholder, i.e. the injured company, (iii) the proof of exclusion of coverage in the event of a "knowing breach of duty" and (iv) the consequences of breaches of duty and insurance avoidance by the insurer. Such issues not only arise again and again in practice. They also harbor legal pitfalls. This article outlines the two decisions 3):

1. 1. The "insured event"

Under D&O policies, the "insured event" is typically not the breach of duty as such, but the first claim against the insured manager for compensation for a financial loss, and the insurance typically covers "insured events" that occur during the term of the insurance contract or, if agreed, during a subsequent reporting period.4) This leads to so-called retroactive cover: even if the breach of duty occurred before the conclusion of the insurance contract, but claims for damages are asserted for the first time after conclusion, this is a covered insured event. That OLG Schleswig confirms this does not come as a surprise.5)

1. 2. The "direct claim": Consequences of the assignment of the coverage claim from the insured manager to the policyholder
      1. Status of case law

Typically, the insured manager is entitled under the D&O insurance, not the injured company, even if the latter has usually taken out the insurance, i.e. is the policyholder. Managers sometimes assign their right to indemnification under the insurance (claim for cover) to the policyholder in order to get out of the line of fire. According to the case law of the BGH, such assignment is permissible and does not affect the liability claim of the injured company against the insured manager. According to the BGH, the manager's claim for cover against the insurer changes from a claim for indemnification to a claim for payment in the hands of the injured company/insured party. However, this does not lead to a "merger" of the coverage and liability claim; rather, the liability creditor is now the holder of both claims. This is because the injured company/policyholder and the manager are not authorized to make the insurance company the debtor of the liability claim without their consent. The liability claim and the coverage claim must be distinguished from the third party's liability claim against the policyholder, as was originally the case with the indemnification claim.6)

1. 1. 2. Assignment on account of performance or in lieu of performance?

The continuation of the liability claim has the disadvantage for the insured manager that the injured party can (re)claim damages from him if he has taken legal action against the insurance company without success.

1. 1. 1. 1. On account of performance

In the case of assignment on account of performance, this is obvious: it does not lead to performance and the subsequent expiry of a claim, but (to put it simply) usually only results in a kind of deferral of the original claim, which ends either through performance (i.e. payment by the insurance company on the coverage claim) or because the attempt to satisfy the claim otherwise fails. If the injured company loses the direct action against the insurer, the judgment has no effect in the relationship between the company and the manager in terms of procedural law.7) An assignment on account of performance will usually be interpreted as containing a standstill agreement (pactum de non petendo), according to which the injured company waives any further action against the manager as long as there is the possibility of obtaining compensation from the insurer (see 3 below).8)

1. 1. 1. 2. In lieu of performance

If, on the other hand, the manager assigns the cover claim to the injured company/insured party in lieu of performance, this raises the question of whether and to what extent the liability claim is extinguished "by performance". If one assumes extinguishment through fulfillment, this leads to the question of what consequences this in turn has for the coverage claim. According to some authors, the liability claim also extinguishes the claim for cover and the insurer's release from liability, but according to the prevailing opinion, which is supported by the Higher Regional Court of Cologne, it does not. This follows indirectly from § 105 VVG, according to which an agreement is ineffective according to which the insurer is not obliged to pay benefits if the policyholder or the insured person satisfies the third party or recognizes his claim without his consent. Accordingly, according to the Higher Regional Court of Cologne, the assigned indemnification claim is only finally converted into a payment claim in the hands of the injured company.9)

1. 1. 1. 3. Federal Supreme Court (BGH)

In this context, the BGH has decided that the assignment is generally made on account of performance, not in lieu of performance.10) Whether a payment is made on account of performance or in lieu of performance in an individual case should, of course, be determined by an interpretation in line with the parties' interests if there are no clear agreements between the parties.11) In the case in dispute, the Higher Regional Court of Cologne held that the assignment was made on account of performance.12)

1. 1. 3. Freezing of claims against the manager (pactum de non petendo)

The question also arises as to how the assignment affects the proceedings. It is often assumed (as already mentioned) that the assignment contains an (implied) standstill agreement (pactum de non petendo), according to which the injured company waives any further action against the tortfeasor as long as there is the possibility of receiving compensation from the insurer.

Both the Higher Regional Court of Cologne and the Higher Regional Court of Schleswig have affirmed such an (implied) standstill agreement in the cases before them. While the Higher Regional Court of Cologne derives its assumption from the circumstances, the Higher Regional Court of Schleswig does not even consider this conclusion worthy of justification.13) The court considers the (implied) standstill agreement to be self-evident. In practice, this means that it is indeed obvious to read the assignment as a standstill agreement at the same time. In fact, this regularly corresponds to the intention of the parties to the assignment: the fact that the manager is to be taken out of the line of fire has nothing to do with the insurance in the first instance.

1. 1. 4. Suspension of the limitation period due to assignment

OLG Schleswig draws a further conclusion: From the implied standstill agreement, i.e. the agreement to suspend the assertion of claims against the manager until the lawsuit against the insurance company was concluded, the court concludes that the limitation period for claims against the manager is also suspended.14)

1. 1. 5. Burden of proof

The Higher Regional Court of Cologne deals in detail with another well-known controversial issue in the wake of the "direct claim": In liability proceedings against its executive body, the injured company benefits from a reduction in the burden of presentation and proof.15) It is disputed whether this relief also applies to the legal dispute which the company conducts against the insurer on the basis of the assigned coverage claim.16) In this case, the Higher Regional Court of Cologne takes the view that the assignment does not change the relief for the plaintiff. Accordingly, in direct proceedings, it is up to the insurer to demonstrate and prove that the misconduct alleged against the board member was not in breach of duty or that there was no fault. According to the Higher Regional Court of Cologne, the prerequisites of the liability claim, which is to be examined incidentally in the context of the coverage process, do not change (as is generally the case with every assignment). Only the creditor is changed. The insurer is not placed in a worse position by the assignment, especially as the board member is available to it as a witness in the direct proceedings.17) It is noteworthy that although the relevant statements of the Higher Regional Court of Cologne are careful and detailed, they were not relevant to the decision, as the court itself points out (para. 97). Accordingly, the court's considerations are only obiter dicta.

1. 3. "Knowingness" / Wissentlichkeit

Under typical D&O policies, insurance cover is excluded in the event of a "knowing" breach of duty. Negligent ignorance and the mere assumption that the breach of duty was possible are not sufficient for this.18) Both the Higher Regional Court of Schleswig and the Higher Regional Court of Cologne illustrate the considerable difficulties in proving knowledgeability in court: In the case of the Higher Regional Court of Schleswig, the issue was that the managing director had not taken out sufficient fire insurance; however, the court rightly points out that knowingness cannot be inferred solely from the gravity of the breach of duty; it is. So the court notes,

"obvious in the case of a lapse on the part of the merchant in insurance law matters [here: Adequacy of fire insurance], it is obvious that it was merely a negligent omission in a rather marginal area of day-to-day business management, and in view of the ultimately manageable additional insurance premiums, it is not at all clear why [the managing director] would have knowingly wanted to cause or maintain underinsurance."

The Cologne Higher Regional Court also dealt with the accusation that the managing director had taken out the fire insurance with underinsured sums. The considerations of the Higher Regional Court of Cologne were similar to those of the Higher Regional Court of Schleswig: It denied intentionality because the reason given by the managing director for the decision not to increase the insurance cover in the minutes of a discussion about the insurance was that the company "would not survive a total loss [due to fire] economically anyway". The court considered this to be a negligent, but not deliberate, misjudgement. It therefore remains the case that even gross negligence is not an indication of intentionality and that it is not easy to prove intentionality)19).

1. 4. Consequences of breaches of obligations - insurance contestation by the insurer

§ 19 (1) sentence 1 Versicherungsvertragsgesetz (Act on Insurance Contracts [„VVG“]) governs the question of which risks the policyholder must point out to the insurance company when concluding the contract and when and how the insurance company can defend itself if the policyholder does not comply with his obligation to provide information. According to the regulation, the policyholder must inform the insurer of those risk circumstances of which he is aware, which are significant for the insurer and which the insurer has asked about in text form. If the insurer asks such questions after the policyholder's policy declaration but before acceptance of the contract, the policyholder is also obliged to notify the insurer in this respect. If the policyholder breaches this duty of disclosure, the insurer may withdraw from the contract. However, the insurer's right of withdrawal is excluded if the policyholder has not breached the duty of disclosure either intentionally or through gross negligence. In this case, the insurer has the right to cancel the contract. These rights of the insurer are, of course, excluded "if he would have concluded the contract even if he had been aware of the undisclosed circumstances, albeit under different conditions". However, a spontaneous duty of disclosure can also come into consideration outside of questions posed under the aspect of § 22 VVG, fraudulent misrepresentation. This is because § 22 VVG does not affect the insurer's right to contest the contract on the grounds of fraudulent misrepresentation. The hurdle for proving fraudulent misrepresentation is admittedly high.

The legislator thus appears keen to restrict the insurer's defense options. The Higher Regional Court (OLG) of Schleswig implements this line: The starting point is the stated legal requirement that the policyholder, in connection with the submission of his contractual declaration, only has to declare such risk circumstances as the insurer has asked about in text form. In the case in dispute, however, the insurer had not asked any questions about the appropriateness of the fire protection insurance in question. The court also discusses § 22 VVG. However, fraudulent misrepresentation presupposes that the policyholder was obliged to disclose the risk in question. This is possible if the policyholder was able to recognize that the insurer's decision would be influenced by certain circumstances despite the lack of corresponding questions.20) The OLG denied such circumstances in the case in dispute as follows:

The agreed sum insured had been quantified by experts and there had been

"there was no reason to point out without being asked that [the managing director] was - of course - not an expert in insurance matters. The fact that he was not aware that he should have ensured that this sum was reviewed over time was something he did not have to and could not disclose without being asked because he had - obviously - overlooked this. D & O insurance should be taken out precisely with regard to such unrecognized risks and the resulting - as stated: merely negligent - breaches of duty in a rather marginal area of his management activities, and this would be pointless if the insurer could evade its obligation to indemnify because a policyholder had not provided unsolicited information on the extent of his knowledge and precautions with regard to all conceivable liability risks. And accordingly, as far as the accusation of fraudulent intent is concerned, [the managing director] could not possibly assume that he would influence the decision of the insurer by remaining silent in this regard, whose task it is by law to inquire itself about circumstances of risk that appear significant to it."

The hurdle of §§ 19, 22 VVG therefore remains high for the insurer.

1. 5. Conclusion

It is to be welcomed that higher regional court opinions are available on the issues of D&O cover that have been discussed for a long time. However, the decisions also show the complexity of the matter. This applies in particular to the topic of "assignment and direct claims". If parties wish to make use of this instrument, it is advisable to expressly regulate the issues set out in the contract in order to rule out any doubts. Ideally, the contract should be concluded with the involvement of the insurer. The desire for efficient clarification and settlement of the dispute can be in the common interest and form the basis of the agreement. Of course, such contracts are often difficult because many procedural and substantive legal developments have to be considered and the situation becomes even more complicated when claims against several managers are involved. In this respect, the author agrees with Armbüster's statement 21) that such assignment agreements, especially those that comprehensively regulate the above aspects, are the exception in practice.

[1] https://www.reutercomplianceblog.com/artikel/leitpfosten-des-lg-frankfurt-zu-brennpunkten-von-manager-haftung-bussgeldregress-und-d-o-versicherung/

[2] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313; OLG Schleswig, decision dated 26.02.2024, 16 U 93/23.

[3] The Blog will attend to two further decisions in this realm in short.

[4] Cf. OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 4 f. und 69.

[5] OLG Schleswig, decision dated 26.02.2024, 16 U 93/23, Rn. 50.

[6] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 73, with reference to BGH, decision dated 12.03.1975, - IV ZR 102/74 -, juris Rn. 14; BGH, decision dated 20.04.2016, - IV ZR 531/14 – NJW 2016, 3453, Rn. 18; Retter in Schwintowski/Brömmelmeyer/Ebers, Praxiskommentar zum Versicherungsvertragsgesetz, 4. Aufl. 2021, § 108 VVG Rn. 27.

[7] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 73, mwN.

[8] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 75, with reference to Lücke in Prölss/Martin, VVG, 31. Aufl. 2021, § 108 Rn. 27; Wandt in Langheidt/Wandt, MüKo zum VVG, 2. Aufl. 2017, § 108 Rn. 119; Brinkmann, ZIP 2017, 301, 303; Grüneberg/Grüneberg, BGB, 82. Aufl. 2023, § 364 Rn. 8.

[9] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 75, mwN.

[10] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 73, with reference to BGH, decision dated 13.04.2016, - IV ZR 51/14 -, juris Rn. 34; Harzenetter NZG 2016, 728, 731; Glimpel, Die Abtretung von Deckungsansprüchen nach § 108 Abs. 2 VVG, 2022, S. 101 mw.Nw. in Fn. 369.

[11] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 78, with reference to BGH, NJW 2018, 3018 Rn. 13 ff.

[12] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 75, with reference to Lücke in Prölss/Martin, VVG, 31. Aufl. 2021, § 108 Rn. 27; Wandt in Langheidt/Wandt, MüKo zum VVG, 2. Aufl. 2017, § 108 Rn. 119; Brinkmann, ZIP 2017, 301, 303; Grüneberg/Grüneberg, BGB, 82. Aufl. 2023, § 364 Rn. 8.

[13] OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 77 ff.; OLG Schleswig, decision dated 26.02.2024, 16 U 93/23, Rn. 83.

[14] OLG Schleswig, decision dated 26.02.2024, 16 U 93/23, Rn. 81 ff.

[15] Cf. § 93 Abs. 2 S. 2 AktG und für die GmbH z.B. BGH, decision dated 04.11.2002 – II ZR 224/00 – juris Rn. 6.

[16] In more detail OLG Köln, decision dated 21.11.2023, 9 U 206/22, NZG 2024, 313, Rn. 93 ff. with reference to Glimpel, Die Abtretung von Deckungsansprüchen nach § 108 Abs. 2 VVG, 2022, S. 241 ff.; Armbrüster in Bruck/Möller, VVG, 10 Aufl., 2021, A-9 Abtretung des Versicherungsschutzes Rn. 32 ff.; R. Koch in Bruck/Möller, § 108 Rn. 63; J. Koch, AktG, 17. Aufl. 2023, § 93 Rn. 129)

[17] In basic agreement, albeit sceptical, Armbrüster, VersR Blog, 08.12.2023, https://www.versr.de/versr-blog-neues-aus-koeln-zur-do-versicherung/; Abruf 12.05.2024.

[18] Lange, D&O-Versicherung und Managerhaftung, 2. Aufl. 2022, § 11, Rn. 16, mwN.; BGH, decision dated 17.12.2014 - IV ZR 90/13 -, VersR 2015, 259 ff., juris Rn. 13 m.w.N.; OLG Köln, decision dated 09.01.2018 - 9 U 33/17 -, DStR 2019, 1486, juris Rn. 94.

[19] https://www.reutercomplianceblog.com/artikel/leitpfosten-des-lg-frankfurt-zu-brennpunkten-von-manager-haftung-bussgeldregress-und-d-o-versicherung/ zum Urteil des Cf. auch LG Frankfurt am Main, decision dated 20.01.2023, Az. 2-08 O 313/20.

[20] OLG Schleswig, decision dated 26.02.2024, 16 U 93/23, Rn. 56; Prölss/Martin-Armbrüster, § 22 VVG, Rn. 3.

[21] VersR Blog, 08.12.2023, https://www.versr.de/versr-blog-neues-aus-koeln-zur-do-versicherung/; download 12.05.2024.