D&O insurance for managing directors in Germany
The managing director of a German GmbH is personally liable for management errors — with his or her private assets and without a cap. D&O insurance protects the people who run the company, including directors appointed by a foreign parent.
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Local policies for foreign subsidiaries
Under Section 43 of the German Limited Liability Companies Act (GmbHG), managing directors must apply the diligence of a prudent businessperson. If they breach that duty, they are liable to the company for the resulting loss, and several directors are liable jointly. In a dispute it is largely the director who has to show that he or she acted diligently.
Most claims come from inside: the company, its shareholders or, in an insolvency, the administrator pursue the director. Claims from outside come from creditors, the tax office or social security institutions. D&O insurance pays the cost of defence and, where a claim is justified, the damages.
Is D&O insurance mandatory in Germany?
No. Neither a GmbH nor an AG is obliged to buy D&O insurance. Because the personal exposure is considerable, many managing directors make it a condition of accepting the appointment, and investors and supervisory boards usually expect it.
What is covered?
Internal liability
Claims by the company against its own directors — the most frequent D&O case in Germany.
External liability
Claims by third parties such as creditors, business partners, the tax office or social security bodies.
Defence costs
Lawyers, experts and proceedings, also where the allegations turn out to be unfounded.
Insured persons
Managing directors, board members, supervisory board members and, by agreement, senior managers.
Run-off cover
Extended reporting periods for claims made after a director has left office.
Why the German subsidiary’s director is exposed
A managing director appointed by a foreign parent carries the same personal duties as any other, whether he or she lives in Germany or not, and whether the role is paid or not. Instructions from headquarters do not remove the duties that German law places on the director personally, for example to keep proper accounts, pay taxes and social security contributions and react in time when the company gets into financial difficulty.
In a financial crisis the director must file for insolvency within short statutory deadlines and may be personally liable for payments made after that point. This is where a large share of German D&O claims originates.
Are we covered by the parent company’s D&O policy?
Often yes in principle, because group D&O policies normally include the directors of subsidiaries. It is worth checking three points: whether the insurer may cover German risks, whether the limit is shared with the whole group and could be exhausted elsewhere, and how German premium tax is handled. Where there are gaps, a local German D&O policy or a personal D&O policy for the individual director closes them.
Limits and cost
As a rule of thumb, limits of 10 to 20% of the balance sheet total are discussed, with €1 million as a minimum. The limit is available once per year for all claims and all insured persons together.
For a financially sound small GmbH with turnover of up to about €2 million and a €1 million limit, the annual premium is often in the region of €500 to €1,500 net. Start-ups with investors, companies in restructuring and businesses with US exposure are rated individually and usually pay considerably more. Insurers normally ask for the latest annual accounts.
Who is behind this page
Vivid Protect GmbH, insurance broker licensed under Section 34d (1) of the German Trade Regulation Act (GewO), broker register no. D-Y7GD-S7M7K-61, managing director Alexia Manukwem. About us
General information, not legal or tax advice. Figures are orientation values and not an offer.
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FAQ
Frequently asked questions
Is D&O insurance mandatory in Germany?
No. There is no legal obligation for a GmbH or an AG. Given the unlimited personal liability of managing directors, it is nevertheless standard for companies of almost any size.
Who takes out the policy and who pays?
Normally the company takes out the policy for all its directors and officers and pays the premium. In addition there are personal D&O policies for individual managers, for example where someone holds mandates in several companies.
How much does D&O insurance cost for a small GmbH?
For a financially sound small GmbH with a €1 million limit the annual premium is often around €500 to €1,500 net. The price depends on turnover, the balance sheet, the sector and the limit; only a quote is binding.
Does D&O insurance pay for wilful misconduct?
No. Intentional breaches of duty are excluded. Good policy wordings pay defence costs until intent has been finally established. Negligent breaches, which are the normal case, are insured.
Is a German managing director covered by a foreign group policy?
Usually directors of subsidiaries are included, but the detail matters: who may insure German risks, whether the limit is shared across the group and how local premium tax is paid. We review the group wording and tell you where a local policy is needed.
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