10 Things You Need to Know About D&O Insurance in Germany

1. Unlimited Liability for Managers

In Germany, managers can be held personally liable for financial losses they cause, even in cases of simple negligence. Claims become time-barred after five years at the earliest, in the case of listed stock corporations after ten years. There’s no statutory cap on liability, which means personal assets may be at risk, if there is no (sufficient) D&O insurance cover. 

2. Internal Claims Are the Norm

More than 90% of D&O claims in Germany are brought not by third parties but by the company itself against its own managers. That is why the main purpose of D&O insurance in Germany is to protect the manager’s assets when the company or its insolvency administrator seeks damages from the insured (so called Side A cover, although the policies usually also provide Side B and Side C cover).

3. Colleagues Must Act or Risk Liability

Members of the management board (“Vorstand”) and of the supervisory board (“Aufsichtsrat”) are legally obligated to pursue claims against fellow members if they become aware of breaches. Failing to do so can expose them to personal liability as well. Under German stock corporation law, it is not permitted to waive claims.

4. Two-Stage Legal Process

There is a general rule in German liability insurance: cover follows liability. D&O cases in Germany therefore unfold in two distinct phases. First, a court must establish the manager’s liability. Afterwards, the insurer indemnifies the insured – or disputes its own liability. The manager then must take legal action against the insurer. This process often takes years. However, it can be shortened if the manager assigns his insurance claims to the company in an early stage.

5. A Complicated Triangle

The company is the policyholder, but the insured party is the manager. This creates a triangular relationship: the company as policyholder sues its own manager as insured, the insurer has to defend the manager, and – if liability is confirmed – the manager later may need to turn against the insurer to seek coverage.

6. Negligence Is Covered, Intent Is Not

D&O insurance covers negligent breaches of duty, but not intentional or knowing misconduct (exclusion of “wissentliche Pflichtverletzung”). Companies often allege wilful wrongdoing of the manager to strengthen their case in the liability lawsuit. By this, they unintentionally jeopardize the manager’s insurance coverage. Insurers frequently dispute claims on this basis.

7. Defence Costs Are Included but Often Contentious

D&O policies cover the insured’s defence costs, meaning the insurer must pay for the manager’s lawyers in the liability proceeding. However, disputes often arise over attorney selection, hourly rates, and total amount of legal fees, especially in long-running cases.

8. One Pot, Many Hands

All insured individuals under a company’s D&O policy share a single coverage limit per insurance period and per loss. In large cases involving multiple managers, this can lead to a race for coverage, since insurers distribute the cover on a “first come, first serve” basis. Legal fees alone can exhaust the policy before any judgment is reached.

9. Punitive Damages Are Not Insured

Fines imposed on the manager by an authority or court (for example for data protection violations or antitrust offences) are not covered under D&O insurance in Germany. However, if such sanctions are imposed on the company, the company may seek recourse from the manager. It is still legally disputed whether such recourse may only comprise indirect loss (legal fees, related claims by third parties, etc.) or also the fine itself.

10. Not All Policies Are Created Equal

Germany’s D&O market includes over 30 insurers, each with its own policy wording. Coverage terms vary widely, and some insurers offer significantly more favourable clauses than others. Securing a strong policy with sufficient limits is no easy task, but it’s essential for managers acting in Germany.

If you have further questions regarding D&O liability and insurance in Germany, we are happy to help.