In a landmark ruling that could reshape the landscape of D&O insurance litigation, the German Federal Court of Justice (BGH) has delivered a decision that challenges long-held assumptions about knowing breaches of duty in insolvency cases. On November 19, 2025, the BGH clarified that a knowing breach of the payment prohibition under insolvency law cannot automatically be inferred from a failure to file for insolvency—a distinction that could have far-reaching implications for insurers and insured parties alike. But here's where it gets controversial: Does this ruling make it harder for insurers to exclude coverage, or does it simply demand a more rigorous approach to proving intent? Let’s dive in.
The case centered on the interpretation of former section 64 sentence 1 of the German Limited Liability Companies Act (GmbHG), now section 15b of the German Insolvency Code (InsO). For the first time, the BGH addressed whether a breach of the obligation to file for insolvency (section 15a InsO)—a cardinal duty for managing directors—could be presumed to indicate a knowing breach of the payment prohibition. The BGH’s answer was a resounding no, overturning the decision of the Higher Regional Court (OLG Frankfurt), which had argued that these obligations were so intertwined that a breach of one implied a knowing breach of the other. And this is the part most people miss: The BGH emphasized that the decisive factor is whether the specific payment in question directly reduced the insolvency estate, not whether other obligations were breached.
Why does this matter? In D&O insurance, coverage for knowing breaches of duty is typically excluded, with the insurer bearing the burden of proof. However, when cardinal obligations are involved, the insurer benefits from a presumption of knowing intent—unless the insured can prove otherwise. The OLG Frankfurt had extended this presumption to the payment prohibition, linking it to the obligation to file for insolvency. The BGH, however, rejected this approach, arguing that each payment must be assessed individually to determine if it was knowingly prohibited. This means insurers can no longer rely on a blanket exclusion for payments made after factual insolvency; instead, they must prove awareness of the prohibition for each transaction. Is this a fair balancing act, or does it tilt the scales too far in favor of insured parties?
The BGH’s decision aligns with its 2020 ruling (case no. IV ZR 217/19), which held that claims under section 15b InsO are generally covered by D&O policies. However, the practical implications are significant. Insurers now face the daunting task of verifying each payment in cases involving multiple transactions or fluctuating assets. How will this play out in real-world scenarios, and will it lead to increased litigation or more cautious underwriting?
For beginners, here’s the takeaway: The BGH’s ruling underscores the importance of distinguishing between different obligations in insolvency law. While failing to file for insolvency is a serious breach, it doesn’t automatically mean the insured party knowingly violated the payment prohibition. Insurers must now build a case payment by payment, focusing on the insured’s awareness of the prohibition at the time of each transaction. This nuanced approach ensures fairness but also adds complexity to an already challenging area of law.
As the dust settles on this decision, one question lingers: Will this ruling encourage more diligent compliance among managing directors, or will it simply shift the battleground to the specifics of each payment? Share your thoughts in the comments—we’d love to hear your perspective on this game-changing decision.
