Volkswagen, several former executives –including Martin Winterkorn, the former Chair of the company’s Board of Management–  and the company’s D&O insurers have reached an agreement to settle damages claims the company asserted against the executives relating to the company’s “Dieselgate” scandal. In March 2021, following a years-long investigation of the scandal by an outside law firm, the company filed the claims, in which the executives were alleged to have breached their duties to the company. The settlement, worth in the aggregate approximately $351 million in U.S. dollar terms, includes substantial payments both by the individual executives and by the company’s D&O insurers. The D&O insurers’ contribution reflects a separate settlement between the company and its insurers with respect to insurance coverage issues. A copy of VW’s June 9, 2021 press release describing the settlement can be found here.


The Claims

VW has of course been enmeshed in scandal for years following revelations in 2015 that the company used software to make it appear that its diesel engine vehicles were in compliance with emissions standards in the U.S. and elsewhere.


For years, the company resisted calls to hold its executives accountable for the scandal. However, as detailed in the company’s March 26, 2021 press release (here), the company’s Supervisory Board voted in March to assert claims for damages against Winterkorn and others. The Supervisory Board’s decision followed the Board’s receipt of a report from an outside law firm of the law firm’s investigation of possible liability claims. According to the press release, the report concluded that “negligent breaches of duty had occurred.”


Specifically, according to the press release, the Supervisory Board concluded that Winterkorn had breached his duties of care as former Chairman of the Board of Management of Volkswagen AG. Winterkorn was charged with breaching his duties in two ways: by failing “to comprehensively and promptly clarify the circumstances” behind the use of the emissions test defeating software in diesel engines sold in the North American market between 2009 and 2015; and by failing to “ensure that the questions asked by the U.S. authorities in this context were answered truthfully, completely and without delay.”


Certain other executives were also charged. Former Group Board of Management Member and Chairman of the Board of Management of the Audi division, Rupert Sadler, was charged with failed to ensure that diesel engines installed in Volkswagen, Audi and Porsche vehicles in the EU “were investigated with regard to unlawful software functions.”


In addition, former Members of the Board of Management of the Audi division, Ulrich Hackenberg and Stefan Knirsch, as well as former Member of the Board of Management of Porsch, Wolfgang Hatz were also accused of “breaches of the duty of care” under the “stock corporation law.”


The March 2021 press release also specifically states with respect to the outcome of the outside law firm’s investigation that “no other breaches of duty by other members of the Group Board of Management were identified.”


VW’s Supervisory Board includes representatives of the Porsche and Piech founding families, as well as the state of Lower Saxony, Qatar, and top officials from the IG Metall trade union.


The Settlement

The settlement announced on June 9, 2021 includes not only payments by the individual executives to settle the claims against them, but also incorporates a separate settlement between the company and its D&O insurers pursuant to which the insurers agreed to make additional substantial payments in order to settle the claims against the executives. These related settlements are all described in a detailed June 9, 2021 joint report of the company’s Supervisory Board and Management Board, a copy of which can be found here. The overall settlement is subject to shareholder approval.


With respect to the individuals, the report states that the individuals had agreed to make contributions toward settlement in the following amount: Wintercorn, €11.2 million; Stadler, €4.1 million; Knirsch, €1 million; Hatz, €1.5 million.


As the Wall Street Journal put it in its June 9, 2021 article about the settlement (here), the “lion’s share of the deal is a €270 million payout” from the company’s D&O insurers. The specific insurance companies contributing to the settlement and the amount of their contribution is detailed on the final page of the joint Board report document to which I linked above. The payout includes contributions from insurers in both VW’s 2015 insurance program and in its 2021 insurance program. The insurers agreement to contribute reflects the company’s and the insurers’ agreement to settle certain disputed items. Apparently not all the insurers in the 2021 program elected to participate in the insurance settlement.


The company’s D&O insurance programs and the nature of the disputed insurance items are described on pages 10 and 11 of the report and the coverage settlement between the company and the insurers is described on pages 16 through 18 of the report. The €270 million total to which the insurers agreed to pay is subject to certain credits including defense costs previously paid.



By any standard, this settlement is massive. By comparison to historical standards of the settlement of D&O claims in Germany, the settlement is unprecedented. The only other prior German D&O claim settlement that even comes close is the 2009 settlement of bribery-related claims against executives of Siemens. As discussed in detail here, in that settlement, former Siemens CEO Heinrich von Pierer agreed to pay €5 million and his successor Klaus Kleinfeld to pay €2 million. Just as with the VW settlement, there was also a substantial D&O insurer contribution toward the settlement; in the Siemens case, the insurers agreed to pay $100 million.


Obviously, the individuals’ contributions toward the VW settlement is quite substantial, and unprecedented in and of itself. However, the thing that strikes me as an observer of the D&O arena is the massive contribution of the D&O insurers to this settlement. I am not active in the German D&O market, but I have to believe a massive settlement like this has to rock the market. If you look at the list of the insurers contributing to the settlement, it is just about the entire D&O marketplace contributing to this settlement. It looks like just about everyone is getting hit with at least a part of this settlement. Some insurers got hit particularly hard, as they had large limits of liability exposed and participated in multiple layers of the two programs. To be sure, at least one of the insurers on the 2021 program elected not to participate in the settlement, but I have to believe this settlement will affect them as well.


I have not extensively described above the various features of the disputed insurance coverage issues or the details of the insurance settlement, but the joint Board report’s description of the issues and the settlement makes for some very interesting reading.


My last observation about this settlement is that it represents one more important piece of evidence that the D&O claims environment outside of the U.S. has changed substantially in recent years. At a minimum, it is increasingly clear that it is not just in the U.S. that company officials can be faced with substantial or even massive claims liability. The changing global liability environment has very important implications for corporate executives. And it also has critical implications for D&O insurers as well – as this settlement clearly demonstrates.