OLG Schleswig on the Assignment of the Indemnification Claim, Case No. 16 U 93/23
The assignment of an indemnification claim from a D&O insurance policy suspends the statute of limitations on the liability claim of the injured company. This was decided by the Schleswig-Holstein Higher Regional Court in its ruling on February 26, 2024 (Case No.: 16 U 93/23).
Managing directors and other senior executives of a company regularly bear a significant liability risk. They can be held personally liable with their private assets for claims from third parties as well as for internal claims by the company against its executives. To mitigate this liability risk, a D&O insurance policy is commonly taken out for managing directors, board members, or supervisory board members, says attorney Michael Rainer, a contact for corporate law at the commercial law firm MTR Legal Rechtsanwälte.
Suspension of the Statute of Limitations
The case before the OLG Schleswig also concerned the statute of limitations on the company’s liability claim against its managing director, after the latter had assigned his indemnification claim from the D&O insurance policy to the company. The Higher Regional Court determined that the statute of limitations on the liability claim is suspended by the assignment for the duration of pursuing the claim against the D&O insurance. During this period, a liability lawsuit against the managing director is also inadmissible. Furthermore, the assignment of the indemnification claim constitutes a so-called “pactum de non petendo” or non-action agreement between the parties. This means that the company commits not to pursue claims against the managing director as long as it is possible to recover the claim from the insurance, according to the OLG Schleswig.
The decision was based on the following facts: In August 2018, a major fire occurred at a large bakery structured as a GmbH. The insurance coverage for the bakery was not comprehensive enough, resulting in the insurer covering only part of the damage, leaving the GmbH with the remaining loss. Since the managing director was evidently responsible for the inadequate insurance coverage, the GmbH held him personally liable.
The GmbH had taken out a D&O insurance policy for its managing director. The managing director assigned his indemnification claims from the D&O insurance to the GmbH. However, the insurer refused to cover the claim, arguing that the managing director had not breached his duties. Consequently, the GmbH sued for coverage of the costs.
Breach of Duty by the Managing Director
The company argued that the managing director had made himself liable to it by breaching his duties. Therefore, he was liable to the company for the resulting damage pursuant to Section 43(2) GmbHG. As managing director, it was his responsibility to ensure adequate insurance coverage. He should have noticed that the bakery ovens were not covered by the building insurance and should have sought an amendment to the policy.
The lawsuit was successful in the first instance. The managing director should not have relied on his assumption that the ovens were covered by the building insurance. He should have verified this and adjusted the insurance coverage accordingly. By failing to do so, he breached his duties. He assigned his indemnification claim from the D&O insurance to the GmbH, which therefore had a payment claim against the insurer, the Kiel Regional Court ruled.
Payment Claim Against the Insurer
The insurer’s appeal was unsuccessful before the OLG Schleswig. The Higher Regional Court essentially confirmed the first-instance judgment. The managing director had breached his duties and was therefore liable to the company for damages. Since he had effectively assigned his indemnification claim against the insurer to the GmbH, the company had a payment claim against the insurer.
The OLG also clarified that the company’s liability claim against its managing director was not yet time-barred. Although the five-year limitation period for liability claims had already expired, the managing director and the GmbH had entered into a so-called “pactum de non petendo” by assigning the indemnification claim. This non-action agreement prevents the company from asserting claims against the managing director as long as it is possible to obtain compensation from the insurance. This also results in the suspension of the statute of limitations on the claim against the managing director.
MTR Legal Rechtsanwälte advises on corporate law and issues related to managing director liability or D&O insurance.
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