Judgment of the OLG Frankfurt dated March 5, 2025, case no. 7 U 134/23
It is part of the duties of a managing director to file for insolvency in due time if the company is insolvent or over-indebted. Once insolvency maturity is reached, no further payments may be made. If the managing director breaches his insolvency-related duties, this can result in the loss of his insurance coverage under his D&O insurance. This was decided by the Higher Regional Court Frankfurt am Main (OLG Frankfurt) as the appellate court by order and judgment dated March 5, 2025 (case no. 7 U 134/23). The Higher Regional Court is located on the Zeil, a well-known shopping street in Frankfurt, and is responsible for the state of Hesse, which also includes the district courts in Kassel and Limburg as well as the local courts and the local court of Frankfurt. In the present case, the matter was heard in an oral hearing before the judges of the Higher Regional Court, whereby part of the judgment addressed the question of intent and possible fault of the managing director. The court’s decision, which is based on a well-founded judicial opinion, can be appealed. In case of a conviction due to intentional conduct, insurance coverage ceases, as expressly stated in the court’s ruling. The grounds for the judgment and the legal assessment are documented on the corresponding page and reflect the history of case law at higher regional courts and courts in Germany. The Higher Regional Court Frankfurt am Main holds a central role in the German judicial system and is particularly responsible for criminal law and criminal procedure in state protection matters. Frequently asked questions about this procedure and court decisions are also answered on the website. Health aspects such as illness can also play a role in the procedure if they are relevant to the assessment of the case.
The D&O insurance is intended to mitigate the liability risk for managing directors, managers, and other executive bodies. However, many policies include a clause whereby the insurer is not obligated to provide coverage if the insured knowingly violated their duties. Among these duties is the timely filing of an insolvency application, according to the corporate law firm MTR Legal Rechtsanwälte, which advises, among other areas, in insurance law.
Introduction to D&O Insurance
D&O insurance, short for Directors and Officers insurance, is a special form of financial loss liability insurance targeted specifically at managers, managing directors, board members, and supervisory board members. It protects these individuals against the financial consequences of claims arising from their activities within the company. Especially in complex corporate structures and groups with extensive decision-making authority, insurance coverage through D&O insurance is of central importance.
In the event of damage, D&O insurance covers not only the costs for defending against unjustified claims but also the payment of justified claims for damages. Thus, it provides comprehensive protection for executive bodies and helps to minimize liability risk in the company. For many companies, D&O insurance is therefore an indispensable part of risk management and an important element to attract qualified managers and supervisory board members for responsible positions. The significance of this type of insurance is steadily increasing as the requirements and liability risks for executives in Germany and on the international market continuously rise.
No insolvency application despite insolvency maturity
In the underlying case, which reflects a significant part of the history of the German judiciary, a limited liability company (GmbH) reached insolvency maturity. The matter involved a legal dispute between the insolvency administrator and the D&O insurance regarding claims for damages incurred. The sole shareholder-managing director failed to file for insolvency in a timely manner and continued to make payments from company assets despite insolvency maturity. This was regarded as a possible management error, with intent also being questioned. The claims of the insolvency administrator concerned not only his own claims but also claims of third parties. The insurer’s refusal to pay was based on an exclusion clause that applies in case of intentional breach of duty. The opinions of the parties involved and the legal assessment of the Wiesbaden District Court were recorded in a ruling that included a judgment ordering the insurer to pay. The judges of the district court, which stands between the local court and higher regional court in the German judicial system, emphasized the court’s role in the proceedings. The Wiesbaden District Court operates within the jurisdiction of the Hessian judiciary and is part of the district courts, which alongside local courts and higher regional courts shape judicial authority in Germany. The decision and its documentation are accessible on the relevant judiciary page. During the hearing, the possibility of an appeal to the Higher Regional Court was also indicated. Although the proceeding concerned civil law, the district court is also responsible for criminal law and criminal procedure. The court’s ruling is legally binding. Frequently asked questions (FAQ) on such cases particularly address the conditions for insurance benefits, the role of errors and intent, as well as claims by third parties.
After the opening of insolvency proceedings, the insolvency administrator demanded that the D&O insurance cover the damage caused. The insurer denied coverage citing an exclusion clause in the insurance terms, which states that no insurance protection exists if the managing director knowingly violated their duties.
The Wiesbaden Regional Court initially ruled in favor of the insolvency administrator and ordered the insurer to provide benefits. According to the Regional Court, it was not sufficiently proven that the managing director had knowingly violated their duties.
Higher Regional Court Frankfurt: Serious Breach of Duty
However, the Higher Regional Court Frankfurt overturned this decision by order and dismissed the lawsuit. During the proceedings and oral hearing, the court emphasized that the obligation to file for insolvency and the prohibition of payments after insolvency maturity are so-called cardinal duties. These rulings and decisions by the Higher Regional Court Frankfurt as the second instance within the judiciary illustrate the role of judges and the importance of the judiciary in the German legal system. Cardinal duties are fundamental, essential duties of a managing director that are central to protecting creditors and ensuring the company’s functioning. Every managing director must know or at least be made aware of the significance of these duties, which is a crucial part of the case and the respective proceedings. The decision is documented on the relevant page and has a particular history in the context of the development of higher regional courts, regional courts, local courts and their jurisdictions, especially in Frankfurt am Main. The Higher Regional Court Frankfurt is responsible as a higher regional court for civil law, criminal law, and criminal procedure and holds a central position within the court system. The legal validity of the order and the possibility to appeal against the decision are highlighted, as well as the consequence of a possible conviction in cases of intentional conduct. Management errors, especially in violating cardinal duties, can be grounds for liability. The court’s opinion is reflected in the legal assessment of the circumstances, and frequently asked questions arise regarding the impact of such decisions on managing directors and companies.
The Higher Regional Court emphasized that a managing director must continuously monitor the company’s liquidity position and act immediately at any sign of a crisis. Waiting until insolvency is obvious is not permissible. There is a close functional connection between the obligation to file for insolvency and the prohibition on making payments, the court further stated. Anyone who fails to file when required also regularly violates the prohibition on continuing payments. Such violations are so serious that, without further evidence, it can be assumed they were committed knowingly. According to the Higher Regional Court Frankfurt, for cardinal duties, an objective breach of duty alone suffices to establish a prima facie case for the managing director’s conscious action.
Managing Director Must Rebut Prima Facie Evidence
This significantly relieves the insurer because, in principle, they must prove the breach of duty when denying benefits. Within the proceedings and the entire case before the Higher Regional Court Frankfurt as the second instance within the judiciary, especially in the jurisdiction of regional courts and local courts, the judges’ rulings are decisive. According to the order and opinion of the Higher Regional Court Frankfurt, documented on the judiciary’s page, the insurer no longer needs to provide detailed proof of what the managing director subjectively knew or intended. Rather, it is now the managing director’s responsibility to rebut this prima facie evidence within the case and as part of the burden of proof distribution—i.e., to prove that despite the objective breach of duty, they neither knew nor could have known that their actions were unlawful. Mere claims of lacking experience or ignorance are insufficient, as the core duties under insolvency law belong to the basic knowledge every managing director must have, the court made clear. An appeal can be lodged against the court’s order, especially during an oral hearing. A conviction for intent is a legal consequence that also plays a role in criminal law and procedure before the courts, particularly the higher regional and local courts. Management errors can be an important reason for the decision. The history of the distribution of the burden of proof and the judiciary’s role are evident in the decisions of the higher regional courts and courts in Germany. Frequently asked questions about the burden of proof and documentation are found on the relevant page.
The ruling shows that D&O insurance does not cover every risk of a managing director. Negligence or minor breaches of duty are generally covered, but not deliberate unlawful conduct.
Appeal Pending Before the Federal Court of Justice
It is therefore extremely important for managing directors to regularly review the company’s financial situation and seek expert advice immediately at signs of insolvency or over-indebtedness. The liquidity status, financial planning, and insolvency application assessments should be carefully documented. Such documentation can later help refute accusations of knowingly violating duties.
The judgment of the Higher Regional Court Frankfurt is not yet legally binding. In addition to revision, an appeal can also be lodged against the judgment to achieve a review of the first instance decision. The revision has already been filed and is pending under file number IV ZR 66/25 at the Federal Court of Justice (BGH). As part of the revision procedure, both procedural and substantive legal questions are examined. The proceedings before the BGH particularly concern the review of judgments and decisions of the lower courts, with the BGH acting as the highest instance of ordinary jurisdiction. The judges of the BGH decide on the matter and can confirm or overturn a conviction by resolution or after an oral hearing. Intent, management errors, the reason for the revision, as well as the legal opinion of the BGH play a central role in this process. The judiciary documents the decision on a corresponding page, which is also significant for the history of jurisprudence. In the German court system, the BGH stands above the Higher Regional Courts, Regional Courts, Local Courts, and is responsible for certain courts and jurisdictions across the entire competence area. Particularly in criminal law and criminal procedure, the BGH is responsible for revisions against judgments of the Regional Courts and Higher Regional Courts. The legal effectiveness of the decision is recorded by an official notification. Frequently asked questions regarding the revision and the individual parts of the procedure are answered on respective pages.
Conclusion and Outlook
The judgment of the Higher Regional Court Frankfurt am Main emphasizes the stringent requirements placed on managing directors and other senior bodies in the performance of their duties. The decision clearly shows that the insurance coverage of a D&O insurance is not unlimited and can be restricted, especially in cases of intentional or knowingly culpable breaches of duty. For companies, managers, and supervisory boards, this means that they must perform their tasks with the utmost care and in compliance with all legal requirements to avoid jeopardizing insurance protection.
With regard to the pending revision at the Federal Court of Justice, it remains to be seen whether and to what extent the jurisprudence of the Higher Regional Court Frankfurt will be confirmed or modified. The decision of the BGH will be of great importance for practice and the market of D&O insurance in Germany and could have far-reaching effects on the design of insurance contracts and the behavior of managing directors and board members. Companies should closely monitor developments and regularly review their internal processes as well as the existing insurance coverage to be optimally protected in an emergency.
As a commercial law firm, MTR Legal Rechtsanwälte provides comprehensive advice on D&O insurances and other topics of insurance law.
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