In the following guest post, Burkhard Fassbach, a D&O lawyer in private practice in Germany, reviews and analzyes a recent decision by the German Federal Court of Justice interpreting and applying the D&O insurance exclusion precluding coverage for “knowing breach of duty.” I would like to thank Burkhard for allowing me to publish his article as a guest post on this site. Here is Burkhard’s article.
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Introduction to the Intent Exclusion
A fundamental principle of insurance law dictates that insurance shall not cover losses intentionally caused by the insured. In the context of D&O insurance, this principle is implemented through the Exclusion for Intent or Knowing Breach of Duty. The classic knowing breach of duty exclusion (German: “wissentliche Pflichtverletzung”) denies coverage for any claim arising from an insured person’s deliberate or knowing violation of their duties. The exclusion typically requires also the insured person’s subjective awareness that their conduct constitutes a breach of duty and will cause damage. The insurer usually bears the burden of proving dolus directus (direct intent) or, at a minimum, a particularly culpable form of awareness of the breach of duty (“Wissentlichkeit”).
The Federal Court of Justice Ruling (IV ZR 66/25)
The German Federal Court of Justice (Bundesgerichtshof – BGH) decision (IV ZR 66/25) narrowed the application of “knowing breach of duty” exclusions in insolvency contexts, holding that a delayed insolvency petition does not automatically indicate knowing violation of the subsequent payment ban (§ 15b InsO). Instead, the insurer must prove subjective awareness for each specific breach, rejecting presumptions from “cardinal duties” like timely filing under § 15a InsO. The liability, arising from § 15b InsO, holds managing directors personally liable for payments made after the company became insolvent or over-indebted, and the statutory duty to file for insolvency was breached.
In a previous judgment the Higher Regional Court of Frankfurt a.M. (Az. 7 U 134/23 – March 5, 2025) adopted a controversial and contrary position. It classified the duty to file for insolvency and cease payments as a “Kardinalpflicht” (cardinal duty). The court then applied a doctrine of “Anscheinsbeweis” (prima facie evidence): it presumed that once the objective breach of this cardinal duty was established (i.e., payments were made after insolvency ripeness), the payments were also made with knowledge of the breach, thereby leading to the D&O coverage exclusion. This OLG doctrine effectively placed an immense and often insurmountable burden of proof on the insured manager to rebut the presumption that he or she acted knowingly – a presumption that was based merely on the objective fact of the untimely payment.
The BGH’s eagerly awaited decision on November 19, 2025 (Az. IV ZR 66/25) fundamentally rejected this broad, presumptive approach and reasserted the stringent requirements for invoking the knowing breach exclusion. Following its established jurisprudence, the BGH reiterated that exclusion clauses must be interpreted narrowly. Risk exclusions such as the exclusion of knowingly breaching obligations must be interpreted strictly according to the wording: “The average policyholder or insured person does not need to expect that there are gaps in their insurance coverage unless the clause makes this sufficiently clear to them.”
Just because a duty seems particularly important, it cannot be universally concluded that the insured manager was aware of the duty and also recognized that they had breached it: “An insured acts knowingly only if they have positive knowledge of the duties breached. Conditional intent, where they merely consider the obligation in question to be possible, is just as insufficient as negligent ignorance. Rather, it must be established that the insured accurately perceived the duties. The insured must have had positive knowledge of the duty they breached and subjectively possessed the awareness that they were acting contrary to law, regulation, or other duty.” Therefore, it is not enough to claim that, given the overall circumstances, the manager should have recognized their breach of duty: “If the person concerned deliberately closes their mind to knowledge, this only permits the assumption of conditional intent.” – and thus, insurance coverage remains in place.
Only obligations causing damage are relevant: A deliberate violation of the obligation to file for insolvency is not causal for the damage in the case of payments from the insolvent company: “The forbidden payments under this provision must have been knowingly initiated after the company became insolvent.” The decisive factor is therefore whether the managing director knew, when making a payment, that this particular payment violated a payment prohibition under insolvency law (§ 15b InsO).
The renowned German Insurance lawyer Mark Wilhelm drew the following conclusion in a LinkedIn post:
“The idea that there are “cardinal duties” of management, the violation of which is always deliberate, has been dismissed by the judgment of the German Federal Court of Justice (BGH).
The insurer must always present and prove that the manager knowingly violated a duty. The insurer does not benefit from any relaxation of the burden of proof.
The decisive factor is always exclusively the breach of duty that leads to the damage. Whether the manager deliberately violated other duties besides this is irrelevant for the D&O insurance coverage.”
The implications of the BGH ruling
Insurers seeking to deny coverage based on the knowing breach exclusion must now gather concrete evidence for each individual payment. The inability to easily establish the exclusion will likely lead to fewer outright coverage denials and may necessitate more complex and lengthy litigation. With the deck now stacked more favorably toward the insured person, insurers may be more inclined to enter into settlement discussions rather than face the high hurdle of proving a knowing breach in court.
For directors and officers, the decision is a substantial strengthening of D&O coverage and a reassurance of the policy’s core function as a shield against potential ruinous personal liability. Managers are still well-advised to maintain meticulous documentation of their decision-making process during a crisis.
Looking ahead, insolvency administrators are expected to pursue claims even more aggressively, because the stricter evidentiary requirements placed on insurers make successful coverage defences less likely and thereby significantly increase the prospect of recovery from the D&O policy. Litigation funders are likely to play an even more pivotal role in insolvency-related D&O claims, as the heightened evidentiary thresholds for exclusions could make these cases more viable for third-party financing, potentially leading to a surge in funded actions against directors.
In conclusion, the Federal Court of Justice decisively strengthens the protective core of D&O insurance in Germany. Exclusions do not erode the policy’s fundamental purpose of shielding directors and officers from insolvency-related liabilities as long as breaches of duty are not committed with the manager’s knowing violation of their duties.