Insolvency administrators are not obliged to maintain the liability insurance concluded in favour of a manager or director. This was decided by the Federal Court of Justice (Ref.: IX ZR 161/15) in April of this year. This means that the legal claim to the cover insured in favour of the managing director, in particular to indemnification in the event of damage, no longer applies.
Regularly no direct claim against the liability insurer
Pursuant to Section 108 of the German Insurance Contract Act (VVG), since 2008 the policyholder (VN) has been able to assign his claim for indemnification (not defence) by the insurer to the (alleged) injured party. On the other hand, a direct claim of the aggrieved party against the insurance company exists only in the case of genuine compulsory insurance (e.g. motor vehicle liability insurance), in the case of the opening of insolvency proceedings or rejection for lack of assets, as well as if the aggrieved party cannot be found (section 115 InsO).
Right of indemnity to the table or release of the insurance claim
The claim for indemnification against the insurer becomes due upon determination of the liability claim (§ 106 VVG) and must be reported to the table in the event of the injuring party’s insolvency (§§ 174 ff. Insolvency Code). There is also a statutory lien for separate satisfaction in accordance with § 110 VVG (“social commitment of the liability insurance”), so that the insolvency administrator must be sued – limited to the claim for indemnification against the insurer:
If the insolvency administrator releases for execution of the separation (within the meaning of section 50 InsO), the debtor (e.g. AG, GmbH) is then no longer sued, but only the debtor (e.g. AG, GmbH); namely for permission to satisfy the lien (section 1277 BGB) or for toleration of the execution in the insurance law coverage claim. This action clarifies the existence of the liability claim against the insurer. The insolvency administrator reduces his litigation risks by his release (BGH, 02.04.2009, file no. IX ZR 23/08).
Action against the insolvency administrator for determination of the insolvency table
Alternatively, if the insolvency administrator has not determined the table, an action can – but does not have to – be brought under § 106 VVG initially only against the insolvency administrator, with the aim of determining the liability claim to the insolvency table: Then the due insurance claim can be collected from the insurer under § 1282 I BGB (pledge). On the other hand, the action against the debtor (as the owner of the insurance claim) offers the advantage of more extensive findings, for satisfaction from the claim, §§ 1282 II Hs.2, 1277 BGB.
Typically, a Steuerberatungs-GmbH becomes insolvent after a consulting error with up to more than six-figure damages – the insurer refuses to pay instead of settling; because not everyone sues – this keeps the premiums lower (see BGH, ruling of 07.04.2016, Az. IX ZR 216/14).
Highest risk for capable Ex-executives and Ex-managers
The BGH (IX ZR 161/15) initially clarifies that the insolvency administrator does not regularly have “insolvency-specific obligations” towards ex-managers or ex-managers. For example, § 60 of the Insolvency Code states: “From the point of view of the best possible protection of the interests of creditors, it may be necessary to maintain a liability insurance policy taken out in favour of the managing director of an insolvent GmbH if liability claims against the managing director cannot be enforced due to lack of financial capacity (cf. BGH, judgement of 18 December 1995, loc. cit. p. 329). On the other hand, there is no obligation on the insolvency administrator to take out such liability insurance from the assets of the estate in order to release the managing director from any liability”.
If the insolvency administrator terminates a manager’s liability, the BGH does not see this as an impairment of the right to segregation (§ 110 VVG) and no liability to pay damages (§ 60 I 1 InsO): The insolvency administrator will ask solvent ex-managers, if necessary authorised signatories, as well as ex-managers to pay with their private assets. The case of the BGH involved 3 million euros: The manager’s liability had been concluded in vain, but not in vain. I guess they sued the wrong guy.
Insurance brokers mediate professional and managerial liability off the peg – and liable?
There are legal regulations in the VVG according to which certain insurances (e.g. buildings, health insurance, life insurance at beneficiary) can be transferred to someone else in case of insolvency, death, termination, among others. In the case of the Federal Court of Justice this was apparently not the case.
However, this can also be regulated individually in the insurance contract itself or as a GTC clause. For example, the right could be contractually granted to continue an insurance policy terminated by the GmbH as a new policyholder. One could also think of a contractual, non-contributory continuation of the contract on a temporary basis in the event of insolvency, or the contractual right for the managing director to take out his own insurance policy seamlessly. The simplest rule, that all damages caused during the contract period are included, is not common in the D&O.
The court also indicates that the insolvency administrator may not be allowed to terminate the contract without any liability risk of his own if he does not have to continue the insurance from the assets, but the insured manager agrees to pay the premiums. It would also be allowed to conclude a contract for several years and to pay the contributions immediately in advance, without the possibility of recovery. Then there is no reason for the insolvency administrator to give notice, because no contributions would have to be paid from the assets.
Cases of revocation of the insurance contract (which may be eternally possible) as well as the (temporary) challenge of the premium payment after insolvency are in need of advice. By revoking a life insurance policy in the event of incorrect revocation instructions, the insolvency administrator can demand all premiums paid and benefits from the insurer and collect them for the estate, destroy all claims, for example from pledges made by the insurance company with the insurer, and deprive the self-employed, including employees with direct insurance policies, of their retirement benefits. In the event of insolvency, it should also be considered to make it impossible for the BoD to terminate the contract or to make it liable for such termination by offering the insolvency administrator a premium payment in good time or by paying the BoD a premium immediately. However, the Insurer may refuse to accept the premium from the Non-Insured and nevertheless cancel the insurance despite his attempted payment due to default.
Since all this is individually possible, but not provided for in off-the-peg products, brokers can be liable. The manager could be included as a third party in the scope of protection of broker advice from the outset. At best, the mediation extends in advance immediately to the possibility of the insurance conclusion by the body and the company, and it is also documented why not the manager but the company should then become the policyholder, as well as the question of their insolvency is also addressed in the consultation for the documentation of the broker.
However, if the manager could have paid the premiums to the insolvency administrator, he may be considerably partly responsible for the damage. But perhaps he can blame the broker for this if he and, if necessary, the company seek further advice on the occasion of the (possibly imminent) insolvency. Moreover, in up to 85 percent of cases, no documentation is provided, to the detriment of the broker – and to improve the manager’s prospects of recourse.
Resistance to insolvency through subsequent attempt to repair the insurance contract?
It would be a bad thing if provisions in the insurance contract supplemented by the broker (e.g. obligation to notify in the event of premium arrears, right of entry as of insolvency maturity) do not apply in the event of insolvency because they are ineffective, because so-called “in the event of insolvency (maturity)” provisions often fall through the cracks in court.
Another case is that the granting of rights is incomplete (BGH, ruling of 26.01.2011, Az. IX ZR 191/10): For example, it happens to almost every retired company pensioner who has been given “his” contract – but only with regard to his claims for insurance benefits, not with regard to ancillary rights. For example, the employer or the insolvency administrator can later revoke everything because of ineffective revocation instructions and thus thus destroy all transferred contractual claims. Finally, most managers will not be aware that a possibly painfully high cartel fine, for example, is not insured, nor is there any obligation to pay compensation for payments after insolvency maturity – or that everything connected with insolvency can be excluded from insurance cover.
Risk management instead of insurance coverage?
More often than not, the insurance coverage of managers ends contractually with insolvency. In most cases, the company must first prove its seriousness by means of a recourse action against the manager, so that a claim is recognised as such in the first place (BGH, ruling of 13.04.2016, ref. IV ZR 304/13). The manager without professional legal protection did not usually expect this.
In retrospect, some managers will wonder whether it would not have been more efficient to operate a proper risk management system – instead of having to accept the lack of it combined with benefit cuts due to gross negligence or deliberate failure to meet liability. After that, one will look for a responsible person – the insurance broker will now be in focus at the latest.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
www.versicherungsbote.de (published on 18.11.2016)
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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