Case Alert - [2018] EWHC 358 (QB)

Judge considers German law issues following notification under a D&O policy

The claimants sought an indemnity under a D&O policy which was taken out by Olympus Europa SE and subject to German law. The insurers argued that there was no cover for breaches which were known prior to 1st August 2015 (the third party claim had been commenced on 28th August 2015 and the claim was notified under the policy in March 2016).

Much of the case turns on its particular facts and the meaning of knowledge under German law. Expert evidence on the point demonstrated that knowledge under German law means "the person concerned has actually come to the conclusion, on the basis of the facts known to him, that duties have been breached". There are therefore two elements to this test: (i) positive knowledge of the relevant conduct; and (ii) a conclusion that the conduct was wrongful. On the particular facts of the case, the judge concluded that the claimants had not had knowledge prior to 1st August 2015 of the alleged breaches of duty that formed the subject matter of the third party claim.

Although it was not necessary to do so, the judge also considered whether the insurers would have been entitled to deny coverage on the basis of a breach of a policy condition requiring the provision of information on request by the insurer. Under German law, an insurer would be free from any liability to indemnify only if the breach is "deliberate". The judge concluded, on the facts, that the failure here to respond to the insurers' request for information had not been deliberate. The claimants had in part relied on legal professional privilege and there had been no particular deadline under German law within which the claimants had to respond: "In circumstances where the lawyers were seeking to gather the relevant documentation, translate documents from German and advise their clients on the appropriate response, the request for an extension to March does not suggest that the delay from renewal of the request on 23 January to 6 March would have been for an unreasonable amount of time in the circumstances".

Furthermore, the judge would have held that the breach had not had a causal effect on the ascertainment or scope of the insurers' obligation to pay, and no detriment had been suffered by the insurers (as required under German law).

The judge also rejected the insurers' argument that the costs to be paid by the insurers under the policy should be assessed on the standard basis. Given the complexity of the matter, it was held that the claimants had been reasonable to use a City firm and the discounted rates charged by that firm were not unreasonable.