Does the german D&O insurance cover PR-costs of manager?
Scope of Managing Director Liability in case of Tax Crimes
D&O insurance for management in German law can even include PR-costs, a new verdict decides.
For managers and managing directors, the german D&O insurance is part of the basics and the most important instrument for avoiding or limiting liability. But how comprehensively does the insurance cover costs incurred in the event of a claim? The Higher Regional Court of Frankfurt, Germany recently had to decide whether the insurance also covers the costs of a PR agency that restores the good reputation of the parties involved (OLG Frankfurt a. M., ruling dated November 5, 2021 - 7 U 96/21).
Investigations against former Management Board member of Wirecard AG
The background to the ruling is the investigations against former Wirecard AG Management Board member Markus Braun. As a former member of the Management Board of the stock corporation, the Munich Public Prosecutor's Office is investigating him for gang-related fraud and falsification of financial statements, violations of the German Securities Trading Act (WpHG) and market manipulation. Because of these alleged violations of capital market law as well as criminal tax law, the media reported on Braun as the "head of a criminal gang."
Braun then commissioned a press agency and a law firm specializing in press law and subsequently demanded reimbursement of the PR costs from his insurance company under his D&O insurance policy as a member of the AG's Management Board. The insurance company rejected this claim with reference to the criminal investigation proceedings.
Scope of D&O insurance in Germany: Career-damage to reputation
The Frankfurt Higher Regional Court now upheld the claim and ordered the insurance company to reimburse the PR costs as well - at least for the time being. This was because, according to the terms and conditions of the D&O insurance policy in question, such costs were covered as were incurred to avert "career-impairing reputational damage" threatened by "critical media coverage of an insured liability claim."
The court argued that it did not matter whether the reporting dealt with the insured event of a specific civil claim (liability insured event) or referred to the insured event triggered by the criminal investigation (procedural legal protection insured event).
Costs for PR agency & lawyers for press law included
In a reasonable interpretation of the insurance conditions, the judges went on to say, the insurance was intended to protect the reputation of the person concerned, in particular from existential damage, especially in the case of criminal reporting - at least insofar as the suspicious reporting was not permissible and therefore acceptable.
This covers not only the costs of lawyers who take action against inadmissible reporting, but also the costs of a PR agency, insofar as these are suitable for preventing the damage to reputation or at least reducing it.
Conclusion: German D&O is the key to liability avoidance
The ruling once again shows the enormous importance of D&O insurance for anyone in a company in a delicate liability situation - be it the managing director of a burgeoning start-up, a flourishing medium-sized german GmbH or the board member of a stock corporation operating nationwide.