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). 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. In case of a conviction due to intentional conduct, insurance coverage ceases, as expressly stated in the court’s ruling.
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, 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.
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. 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. Management errors, especially in violating cardinal duties, can be grounds for liability.
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. According to the order and opinion of the Higher Regional Court Frankfurt, 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.
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. Intent, management errors, the reason for the revision, as well as the legal opinion of the BGH play a central role in this process.
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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