The Wirecard case raises complex liability issues. No less difficult is the terrain of D&O insurance, in which the former Wirecard CEO Markus Braun has already initiated several court proceedings. [1] Of more general interest for D&O insurers, however, is a new, detailed ruling handed down by the Higher Regional Court of Frankfurt on the claim of another Wirecard manager, namely the former head of accounting, who wanted to be reimbursed by the D&O insurer for the costs of his legal defense and for public relations consultants. The Higher Regional Court of Frankfurt dismissed the claim against the insurer because the sum insured had been exhausted, and in its ruling addresses key issues of D&O insurance coverage law, in particular, how insurance sums are to be distributed if they fall short of the total sum of damages [2] Some of the issues dealt with often arise in practice and are neuralgic. The judgment is carefully and broadly reasoned. It is therefore outlined on our blog, even though the OLG has allowed an appeal, meaning that the last word has not yet been spoken.
I. What was it about?
The plaintiff demanded D&O insurance cover for legal defense under press law and media defense against damaging media coverage (referred to by the OLG collectively as public relations costs / PR costs). The terms and conditions of the D&O insurance covered such costs with certain sub-limits The total sum insured for the 2019 insurance period amounted to EUR 25 million and EUR 15 million for 2020. In connection with the events at Wirecard, criminal proceedings are being conducted against the plaintiff and other managers for commercial gang fraud, breach of trust and aiding and abetting market manipulation. The plaintiff rejects all allegations against him as unfounded and demanded that insurance cover be granted for his defense in the criminal proceedings, including the custody proceedings and property arrest, as well as for PR costs. Although the insurance company initially refused all of this, it was ordered to grant provisional cover in interim injunction proceedings by Frankfurt Regional Court and Higher Regional Court. [3] With regard to the PR costs, the insurance company refused to grant formal cover. This led to the present judgment. The plaintiff argued that he had been exposed to critical media coverage which could have damaged his reputation and jeopardized his professional future. The insurance company objected that PR costs could only be granted - even in the context of an insurer-friendly interpretation - if there was critical media coverage of an insured liability claim; this was not the case here. A reduction of the insurance cover was not to be feared, as the commitment in question was an extension of cover. In addition, insured reputational damage could not occur as a result of accurate and objective media reporting, especially as the legal action against the reporting had been unsuccessful. In the further course of the proceedings, the insurance company argued that the 2020 sum insured had now been used up for the claims of other managers. The plaintiff then demanded payment from the sum insured for 2019 and claimed that the insurance company should not have disregarded the plaintiff when distributing the sum insured for 2020.
II Exhaustion of the total sum insured
1. Starting Point
The OLG first confirmed that the insurance company can refuse cover as soon as the total sum insured has been exhausted, even if the previous cover payments have been made to other insured parties.
The effect of fulfillment according to § 362 BGB also occurs in the case of “provision of the conditional insurance benefit to other insured parties”. The fact that the plaintiff could also be entitled to benefits on the merits does not change this. The total sum insured had been agreed in an admissible manner. The determination of a total sum insured for a case of legal expenses insurance as well as for cases of legal expenses insurance that are related in terms of time and cause is “fundamentally effective” and withstands both a clause review under general terms and conditions law and a review pursuant to Section 242 BGB. All of this is based on fundamental considerations regarding the distribution of the sum insured and the nature of D&O insurance.
2. Credit against the total insurance sum
The OLG states that, in principle, all payments made by the insurer in an insured event are credited against the insurcane sum, unless otherwise stipulated. [4] In the case in dispute, however, nothing else had been agreed; on the contrary, the insurance conditions contained a cost offsetting clause. In the legal dispute over the validity of this clause[5], the OLG sided with the proponents of the validity of the clause because the public involved could not expect the insurance to be effective.
3. Obligations of the insurer in distributing the insurance sum
According to the Higher Regional Court (OLG), the fact that a D&O insurance sum often covers various costs and parties does not lead to a different conclusion. While there is a risk that a claim for damages could exceed the remaining insurance sum after unsuccessful defense efforts, thereby requiring the insured person to cover the difference personally—further exacerbated by the insurer's right to choose fulfillment options—the OLG counters this argument. It holds that this is simply a consequence of purchasing a limited insurance sum, which could be avoided by selecting an "adequately sized insurance sum."[6]
Moreover, according to the OLG, defense costs are difficult to predict in advance and can be substantial. The risk associated with not accounting for these costs would be far greater than with other types of insurance, potentially calling the current structure of D&O insurance into question.
This naturally led the OLG to consider how funds should be allocated when it is foreseeable that the insurance sum will be insufficient to cover all damages. The court ruled that insurers may generally apply the priority principle and are not required to prorate payments. The insurer may not, however, rely on depletion of the sum in cases where the distribution method is manifestly improper and constitutes an abuse of rights (referencing Section 109, Sentence 2 of the German Insurance Contract Act, VVG), particularly given that the insurer acts as a quasi-trustee for the insurance sum. Evidently improper allocation of the insurance sum does not absolve the insurer of its obligations.
In the case at hand, the OLG deemed the insurer's approach permissible, as it reimbursed claims in accordance with the priority principle based on the timing of each liability event. In the absence of a statutory or contractual rule to the contrary, the insurer was fundamentally authorized to act in this manner. The court noted that there is currently no established contractual practice explicitly addressing the allocation of an insufficient insurance sum among multiple insured parties within a group policy. Allocation based on the proportionality principle (analogous to Section 109 VVG) would result in the insured party responsible for causing the largest damage benefiting the most, making it just as unsuitable as the per capita principle (Section 430 BGB) or Sections 428 and 432 BGB. Therefore, the predominant arguments support the customary priority principle ("first come, first serve") in the settlement of insurance contracts.
III. Applicable insurance sum: Insurance event and circumstance reporting
A point of contention in this case was whether the plaintiff could claim the (larger and unexhausted) insurance sum from the 2019 policy year after the insurer asserted that the 2020 insurance sum had been depleted. The OLG rejected this, as neither a valid circumstance report for 2019 nor a series of related damages connected to 2019 was present.
1. Circumstance reporting
Insurance coverage is generally provided under the terms of the policy period (and the applicable insurance sum) in which the "insurance event" occurs. [7] The occurrence of an "insurance event" therefore determines the applicable insurance sum. According to typical D&O insurance conditions, the "insurance event" is usually defined as the first claim or the initiation of the first legal proceeding ("claims-made principle"). Some policy clauses modify this by allowing for circumstance reporting: if circumstances likely to result in an insurance claim are discovered during a policy period, they can be reported to the insurer as a precaution. A claim based on these circumstances is then deemed to have occurred during the policy period when the report was first made.
In this case, the OLG determined that the insurance event occurred in 2020 (the ad-hoc announcement by Wirecard). The court found no valid circumstance report for 2019. Although there was a letter in 2019 labeled "circumstance reporting," the applicable policy conditions required the identification of the potential breach of duty by a specific insured person, the possible damage, and the potential claimant or legal proceeding. The circumstance report does not replace the insurance event but merely preserves the legal status quo (in this case, the 2019 insurance sum) if a future insurance event occurs. The conditions stipulated that merely identifying general circumstances that could potentially lead to economic consequences was insufficient. The potential future claim had to be sufficiently concrete and precise for the insurer to assess and account for its ongoing risk.
2. Series of related damages
The plaintiff also argued that Wirecard had already been subjected to a class-action lawsuit in the U.S. in 2019 and that this lawsuit, together with the claims in the current case, constituted a series of related damages. The OLG rejected this argument as well. First, the U.S. claims were expressly excluded from the coverage of the D&O policy at issue. An uncovered event could not serve as a basis for a series of related damages. This conclusion followed from both the purpose and the structure of the series of related damages clause.
Such clauses are intended to limit risk. An interpretation that would expand the insurer's liability would therefore be incompatible with their purpose. Otherwise, it would be possible to generate an insurance event despite the circumstances being clearly excluded from coverage, thereby determining the applicable policy period and its conditions. Moreover, it would be against good faith for the plaintiff to use the undisputedly excluded U.S. class action as a pretext to achieve a favorable series connection.
IV. Claim for Coverage of PR Costs
1. Scope of Coverage for PR Costs
The OLG upheld the claim for coverage of PR costs under the applicable insurance conditions in this case. This constituted an "assistance service," an additional support benefit as part of the insurer's extended performance obligations, which the insured could claim after the occurrence of an insurance event. An insurance event, as defined by the policy, was deemed to have occurred since an investigation had been initiated by the public prosecutor's office against the plaintiff for alleged breaches of duty in his capacity as an insured person. The OLG rejected the insurer's argument that PR costs should only be covered if media reporting related to specific liability claims in connection with civil lawsuits. This interpretation contradicted the insurance conditions at issue.
The OLG reiterated that general insurance terms must be interpreted as a reasonable policyholder would understand them upon careful review and consideration of their context. Furthermore, the insurer's interpretation would lead to "significant coverage gaps."
2. Relationship to criminal legal expense insurance
By upholding coverage for PR costs, the OLG blurred the traditional categories between civil and criminal legal expense insurance. PR costs are often assigned to criminal legal expense coverage, and the insurer in this case argued that most claims under D&O insurance involve allegations of negligent breaches of duty, with cases involving criminal relevance being rare. The PR cost coverage was merely a special extension offered by the defendant, and criminal legal expense insurance is typically available separately in the market. The OLG dismissed this argument, stating that such distinctions were not known to the average policyholder, and the coverage extension should be interpreted restrictively.
3. Appropriate hourly rate for legal services
The parties and the OLG agreed that an hourly rate of EUR 450 for legal representation in press law matters was reasonable.
V. Practical conclusions
- Limitations on coverage extensions for PR costs must be clearly defined.
- The timing of when insured persons or policyholders notify the insurer of potential claims can be highly significant, especially when insurance sums change.
- The insurer can generally rely on the exhaustion of the insurance sum through payments to other insured parties, provided the distribution is not arbitrary or abusive. Allocation based on the priority principle ("first come, first serve") is typically permissible. This may lead to a race among insured parties, increasing the importance of timely reporting.
- It is permissible to credit both PR and defense costs against the insurance sum.
[1] For example OLG Düsseldorf, decision dated 20.09.2023 - Az. 4 U 117/23.
[2] Decision dated 29.11.2024 - Az. 7 U 82/22.
[3] OLG Frankfurt, decision dated 04.08.2021 - Az. 7 W 13/21.
[4] Lange, r+s 2024, 891, para. 9.
[5] Fort he prevailing view: Lange, r+s 2024, 891, para. 49; Armbrüster, NJW 2016, 897, 898; Doralt, ZGR 2019, 996, 1038; Malek/Schütz, r+s 2019, 421, 428 f.; Seitz/Finkel/Klimke, D&O-Versicherung, Auflage 2016, Ziff. 4 AVB-AVG, para. 59 ff.; für the dissenting view: Prölss/Martin/Voit, VVG, 32nd ed. 2024, AVB D&O A-6.4 para. 2; HK-VVG/Schimikowski, 5th ed 2024, § 101 para. 4; Säcker, VersR 2005, 10, 14 ff.
[6] See Lange, D&O-Versicherung und Managerhaftung, 2nd ed. 2022, § 15 para. 28.
[7] Lange, D&O-Versicherung und Managerhaftung, 2nd ed. 2022, § 9 para. 2.
