Federal Court of Justice (BGH) Decision of November 19, 2025 (IV ZR 66/25) on the Loss of D&O Coverage in the Context of Insolvency Law

According to the Senate’s established case law, risk exclusion clauses in general insurance terms and conditions must be interpreted narrowly and not more broadly than their meaning requires, taking into account their economic purpose and the wording chosen (para. 10a). 

Regarding the relevant exclusion of risk under No. 6 of the ULLA, the FCJ clarifies that “it is precisely the breach of duty” on the basis of which the insured person is held liable for compensation for financial loss that must have been committed knowingly (para. 9). It is not sufficient to invoke a breach of the duty to file for insolvency (Section 15a German Insolvency Code) to deny insurance coverage for claims under Section 64 German Limited Liability Companies Act (former version) in their entirety. After all, the fact that a company has become insolvent does not imply that all payments made thereafter are prohibited (para. 17). The FCJ thus clarifies that the duty to file for insolvency and the duty to make payments after insolvency has become imminent only to the extent consistent with the diligence of a prudent businessman are legally independent obligations. A breach of one obligation does not automatically imply that the other obligation has also been breached. Consequently, each individual payment must be examined separately to determine whether it objectively violates the prohibition. Only once it is established that a payment is prohibited does the question arise whether the managing director was aware of the impermissibility of that specific payment and nevertheless made or arranged it. 

The ruling clarifies the requirements for a proper procedural submission by D&O insurers regarding the exclusion of risk due to a knowing breach of duty. D&O insurers bear the primary burden of proof regarding the existence of the subjective requirements for the exclusion with respect to each individual payment made after the company became insolvent. This is a clear and thus helpful clarification. 

However, lengthy coverage disputes – including those concerning the interpretation of risk exclusion clauses in insurance contracts with reference to alleged knowing breaches of duty – are unlikely to be avoided as a result. In any case, the ruling was issued regarding § 64 German Limited Liability Companies Act (former version) and thus “only” concerns the predecessor provision of § 15b German Insolvency Code. Therefore, it remains an open question whether the FCJ would adopt a comparable approach in relation to § 15b German Insolvency Code.

Section 15b(3) of the German Insolvency Code provides (unlike the former version Section 64 of the Limited Liability Companies Act) that payments made only after the deadline for filing for insolvency has expired “are generally not consistent with the diligence of a prudent and conscientious manager.” 

Pursuant to § 15a(1) sentence 2 German Insolvency Code, the insolvency petition must be filed no later than three weeks after the onset of inability to pay and six weeks after the onset of over-indebtedness. The inability to pay of a company or its over-indebtedness constitutes reasons for insolvency that, in practice, mark a company’s so-called “insolvency trigger”. 

For D&O insurers, the question that remains to be clarified is whether the statutory requirement of Section 15b(3) German Insolvency Code for a regular withdrawal of liability protection following a failure to meet the deadline for filing for insolvency can be interpreted as a knowing breach of duty by the managing director. 

For insolvency administrators, the already narrow scope for bringing liability claims against a company’s managing directors under § 15b of the German Insolvency Code is likely to become even more restricted in both liability and insurance coverage proceedings. In practice – given the practical feasibility of asserting special assets for the insolvency estate – the earliest provable date of insolvency is regularly used as the basis. However, in certain scenarios, depending on the specific amount of payments made after the expiration of the deadline for filing for insolvency, this could have adverse consequences in a coverage lawsuit against the D&O insurer.