D&O Coverage for Incorrect Payments During Bankruptcy

A D&O insurance policy covers the risk for financial damages for the insured director or executive staff member. Does it also cover damages for a director’s incorrect payment during bankruptcy? The Higher Regional Court Düsseldorf answered this question on July 20, 2018 (re I-4 U 93/16).

D&O Coverage for Incorrect Payments During Bankruptcy

Director demanded Coverage from D&O Insurance

Sammy was director of a company that went bust. The bankruptcy manager successfully sued Sammy to reimburse the company with 200 k€ pursuant to §64 GmbHG. This provision determines that directors are generally personally liable when they authorize payment after bankruptcy or excessive indebtedness. Sammy believes that his D&O insurance policy covered this damage and requested indemnity.

D&O Insurance does not Protect a Creditor’s Interests

The court turned Sammy’s claim down. The OLG reasoned his claim had nothing to do with his insurance policy. The liability pursuant to §64 GmbHG is not comparable to a pecuniary loss. It is damage of genuine kind which protects the creditors of a bankrupt company. Due to the director’s liability, the company suffers no loss because the payment was illegal under bankruptcy law.

Insurance has no Arguments for a Defense

Furthermore, the liability pursuant to §64 GmbHG is not covered by D&O insurance. The insurance has no demurrers, as in normal liability cases. Typical arguments like contributory fault or joint liability are not applicable in the issues of Sammy’s. The court saw that the insurance might fall short in this regard but this was no argument for the judges.

Related Articles:

Liability During Crisis and Bankruptcy of the Company

Director’s Liability