Stefan Segger has published an article in the German legal press on whether ‘uninvolved’ directors can be held liable for deliberate breaches of duty by their co-directors. For the German speakers among our readers, a ‘teaser’ for the article can be found here.
This question has significance since, if ’uninvolved’ directors can be held liable, their D&O insurers have to cover any claims arising from the breaches. This raises an issue as to the extent and scope of a director’s duties under German law.
Under German law, a director’s duty to control and supervise his/her co-directors is limited by a presumption of trust, the reasoning being that otherwise it would not be possible for a company’s directors to share responsibilities in any meaningful way. German law recognises that in order for a company to operate effectively, there needs to be general trust between the directors.
Therefore, the only circumstances in which directors are required to supervise and control their colleagues is when there are indications of wrongful behaviour. In that situation, ‘uninvolved’ directors have a fundamental obligation of control and supervision.
Ultimately D&O insurers do not have to provide coverage for claims against those directors who deliberately breach their duties. But for those who are ‘uninvolved’ and are accused of negligent behaviour, in line with the principles discussed above the D&O insurer has to grant coverage and defend them.