How far can the rights of a criminal defense insurer extend?

In practice, insurers repeatedly try to limit protection in criminal proceedings – for example, by referring to allegedly deliberate breaches of duty even before a court has rendered a decision. This regularly leads to conflicts between managing directors and insurers, particularly in the case of D&O insurance with included criminal defense insurance cover.

A landmark decision significantly shaping this issue to date was issued by the Hamm Higher Regional Court: In a ruling dated July 13, 2023 (case no. 20 U 64/22), the court set clear limits for the scope of benefits of criminal defense insurance – and strengthened the key rights of insured persons.

A case with a signal effect

The managing director of a company was accused of VAT evasion amounting to millions. He denied the allegations. The criminal court initially refused to open the main proceedings. It was only after a successful appeal by the public prosecutor's office that the charges were admitted to the main trial.

In the course of the proceedings, the managing director turned to his criminal defense insurance to have the costs of his defense reimbursed. Despite an initial promise, the insurance company refused to cover the defense costs. In the insurance company’s opinion, the managing director had committed a “knowing breach of duty”, which is why the insurance contract did not cover the costs.

In the insurance company's view, this reason for exclusion also applied even if there was no final conviction. The insurance company therefore refused to cover the costs, even without a decision by the criminal court. The policyholder brought an action against this.

How far can legal defense insurers actually go?

The Hamm Higher Regional Court drew clear boundaries: The decision not only strengthens the rights of insured persons, but also sets standards for how far insurers may go in investigation and criminal proceedings. This is particularly relevant for constellations in which criminal charges are pending but no court decision has yet been rendered.

No reduction in benefits without conviction

The Higher Regional Court of Hamm ruled that the insurer must not invoke an exclusion of benefits in the case of criminal defense insurance cover if the insured person has not yet been finally convicted. The insurer cannot rely solely on the fact that a “knowing breach of duty” is alleged by the public prosecutor’s office.
This applies in particular if the insured person denies the criminal allegations and the court initially refused to open the main proceedings.

No right of interrogation by the insurer

The Hamm Higher Regional Court also clarified that there are limits to the insurer's rights of investigation and the insured person’s duty to cooperate. The insured person is contractually subject to certain obligations to provide information. However, these cannot be aimed at enabling the insurer to prove a “knowing breach of duty”, i.e., proof of a reason that excludes insurance cover.

It would be contrary to the right to silence in criminal proceedings if the insured person had to provide full information to their criminal law insurer. This applies in particular if the sole purpose of this is to enable the insurer to examine the plea of knowledge.

If the insurer only wishes to grant (provisional) criminal defense insurance cover to persons who rightly deny their knowledge – i.e. who are innocent of intent and would be acquitted – this must be expressly stated in the insurance conditions. Otherwise, the insurer cannot derive a benefit requirement from this. If this is not the case, the insurer is not entitled to “interrogate” the insured person about the accusations. In this respect, it is sufficient if the insurer knows that the insured person denies the allegations.

No right to disclosure of defense documents

The insured person does not have to disclose confidential defense correspondence. Such correspondence is protected and is not subject to disclosure to the insurance company – especially if it could be confiscated.

No right of access to files by the insurer

Another clear signal: The insurance company is also not entitled to inspect the investigation files. The insured person himself has no right to inspect the files – such right lies solely with the defense lawyer, who is also not obliged to pass on documents.

What are the insured person’s obligations?

This leaves the question of what information the insured person must provide to the insurer. In any case, this information must show that an insured event has occurred. It must also be clear that the insured person denies the criminal allegations. In addition, the insured person must provide the insurer with the necessary information to assess the reasonableness of the defense costs. For this purpose, it is sufficient if the insured person documents the costs of the defense and provides the insurer with this information, e.g., through activity reports.

How is the sum insured distributed?

Another important question on which the Hamm Higher Regional Court also commented in passing: How is the limited “insurance pot” to be distributed. Especially in large criminal proceedings with several defendants, this can become a contentious issue between all parties involved. According to the Hamm Higher Regional Court, the sum insured is to be divided on a per capita basis. As long as the sum insured is sufficient, all parties are to be served equally. If the sum insured is insufficient, the costs must be divided proportionally instead of determining an order of priority. This regulation aims to ensure a fair and equitable distribution of the sum insured among the beneficiaries.

Conclusion: Strengthening the rights of insured persons

In its decision of July 13, 2023, the Hamm Higher Regional Court strengthened the rights of insured persons. Criminal defense insurers must not make arbitrary judgments about guilt or intent as long as no conviction has been made.

Managing directors and companies can rely on the insurer not asking them the same questions in advance as the criminal justice system – and not requiring them to cooperate “on suspicion”.