D&O insurance: Is the sum insured sufficient to cover the costs of legal advice?

published on 17 September 2025 | reading time approx. 4 minutes

The D&O insurance (directors’ and officers’ insurance) for management bodies is by now a common insurance for many German companies. The insurance should cover the costs of legal advice, but also PR measures in trials, if necessary, at an adequate amount. It is advisable to check the contract for sufficient coverage when it is concluded and followed on an ongoing basis. In general, it is advisable to consult a legal advisor.

If agreed on, procedural costs (PR costs and legal advice costs) may be deducted from the total sum insured in the event of a claim. This can result in a significant portion of the maximum sum insured already spent by the proceedings, meaning that not the entire costs are covered in the end. This was recently decided in a case by the Higher Regional Court of Frankfurt (ruling of 29 November 2024 – 7 U 82/22) in the aftermath of the Wirecard accounting scandal, in which a former authorized signatory of the company asserted claims against the insurance company for PR costs.

This article highlights some statements from the ruling.

Basic aspects about D&O insurance

The D&O insurance is a special type of pecuniary damage loss liability insurance for company managers and senior executives, designed to protect them from the financial consequences of liability claims. The insurance coverage is limited to negligent breaches of duty. In addition, D&O insurance fulfils a similar function as a passive legal expenses insurance. It covers the costs of legal defence – including lawyers, expert witness, and trials – if an unjustified claim is made against the insured.

Typically, companies conclude D&O insurance for the following persons:

Managing directors of limited liability companies and the board of directors of stock corporations,
Authorized signatories and senior executives,
Supervisory board members, advisory board members and members of control committees,
Board of directors and executive bodies of foundations and non-profit organizations
(individually referred to as “Insured Person” and collectively referred to as “Insured Persons”).

In this context, it is also common to choose so-called group insurance policies, in which the sum insured can be claimed and thus reduced by several Insured Persons, for example the entire board of directors or all authorized signatories and senior executives.

The main purposes of liability insurance are to defend against unjustified claims for damages and to indemnify the Insured Person. Therefore, services (e. g., legal advice) provided in the run-up to trials may also be covered by the insurance. However, it should be noted that these services are usually deducted from the sum insured and may result in the sum insured being spent at an early stage.

Agreement on a deduction clause

In general, all benefits paid by the insurer are deducted from the total sum insured, unless otherwise specified. A deviating provision can be found in Section 101 para. 2 sentence 1 of the German Insurance Contract Act (VVG), according to which, in case of liability insurance, the legal protection costs incurred by the insurer are not to be deducted from the sum insured per se. However, this is a dispositive regulation from which the parties may deviate.

In this particular case, the insurance terms and conditions explicitly agreed to deduct legal expenses. These kinds of terms are quite common for D&O insurance. The Higher Regional Court of Frankfurt also acknowledged this, saying it's a principle that applies without exception. So, legal expenses are usually deducted from the maximum insurance sum. Any additional costs, such as PR expenses, are also offset against the sum insured, unless explicitly stated otherwise. This highlights the need to carefully review the insurance terms and conditions, particularly the sum insured and the deduction clauses. It is important to ensure that the amount of coverage is appropriate.

Conclusion

The ruling shows that D&O insurance has its limits, especially in the case of larger claims, and that the sum insured can already be spent on legal protection and accompanying services. In this case, the insurance company can invoke its obligation to cover the claim, and the Insured Persons must bear the remaining costs themselves. The risks can multiply further, especially in the case of group insurance.

It is therefore essential to review the (total) sum insured, the individual coverage limits, and the deduction clause when signing a D&O insurance and on an ongoing basis throughout the term of the policy. It is advisable to ask for legal advice when reviewing and potentially negotiating with the insurance company.