BGH Decision on Liability Settlements between Volkswagen and D&O Insurers in the Context of the Diesel Scandal
On September 30, 2025, the Federal Court of Justice (BGH) issued a landmark decision (Case No. II ZR 154/23) re-evaluating central aspects of the legal disputes surrounding the so-called diesel scandal: Liability settlements between Volkswagen AG and several insurance companies, concluded under the framework of Directors and Officers Liability Insurance (D&O insurance), were declared non-transparent and inadmissible. The lower courts had initially approved the agreements between Volkswagen and the insurers regarding the liability of former board members. With the current BGH decision, the discussion on the scope and admissibility of D&O coverages, as well as the standard of corporate governance, gains significant momentum.
Background: D&O Coverage in Liability Cases
D&O insurance (Directors and Officers Liability Insurance) protects members of corporate bodies and executives of a company from claims arising from breaches of duty during their service. In the context of the diesel scandal, the question arose as to the extent D&O insurers are liable and to what extent companies like Volkswagen may enter into settlements with these insurers, especially when party interests may potentially conflict and the societally mandated liability standard is affected.
The Proceedings before the Federal Court of Justice
Following the diesel scandal, Volkswagen, represented by the supervisory board and management board, entered into settlement agreements with various management insurers, according to which insurers were to make significant payments to settle potential damages claims. At the same time, former board members were largely released from further claims. The district court and the higher regional court initially confirmed these solutions and relied on corporate autonomy.
However, the BGH scrutinized the settlement arrangements more intensively:
- The judges found that the concluded settlements were not sufficiently transparent in crucial parts and thus not suitable to ensure shareholders’ control opportunities and protection from conflicts of interest.
- In particular, shareholders and other potentially harmed stakeholders would mostly be left out if settlements are negotiated exclusively between companies, former board members, and insurers without disclosing the underlying evaluation and decision-making bases.
- The rights of the general meeting to participate and be informed were deemed insufficiently considered.
The BGH also emphasized that the examination of board accountability and any breach of duty must not be left solely to the negotiating power and logic of the parties.
Corporate Law Implications and Impact on Governance
The BGH decision highlights the corporate duty of care (§ 93 of the German Stock Corporation Act) and the required control by the general meeting. According to the court, any form of liability settlement solution must ensure that the interests of the company and its bodies, especially minority interests, are not undermined.
The obligation for full and understandable clarification of the facts was emphasized as essential. Confidentially agreed compensations, concluded without proper control and transparency, are incompatible with the liability regime of stock corporation law and the responsibility of corporate bodies.
For D&O insurance and their future contract design, a more demanding demarcation line emerges: both the scope of coverage and the terms of any settlements are subject to further judicial and internal corporate scrutiny.
Impact on Corporate Practice and Ongoing Proceedings
With the ruling, the BGH sets a precedent. In the future, companies – and especially their bodies – are required to fulfill extensive review and disclosure obligations when settling damages cases related to D&O insurance services. Settlement negotiations must not be conducted at the expense of the company and its shareholders without fully safeguarding their rights.
It should be noted that numerous aspects of the civil processing of the diesel scandal have not yet been finally clarified by the courts. The presumption of innocence applies to all involved individuals and companies until binding decisions on breaches of duty exist.
Source Note
The reasons for the decision and background information are based on the published case annotation on BGH, judgment of 09/30/2025 – II ZR 154/23, available at urteile.news.
Further Legal Perspectives
The decision of the Federal Court of Justice marks another milestone in corporate liability issues and in the handling of D&O insurance in Germany. The related questions concern numerous actors in the corporate landscape, from board members to major shareholders and institutional investors. In an increasingly legalized and globalized society, the requirements for compliance and transparency will continue to rise.
For further questions at the intersection of liability law, corporate law, and insurance law, the team at MTR Legal Attorneys is available as a point of contact.
