Overview: Insurance claims and coverage in Germany
Claims and insurance coverage
Third party actions
Can a third party bring a direct action against an insurer to obtain coverage?
Normally, only the insured has a claim for coverage against the insurer. For liability insurance, Section 115 (1) of the German Insurance Contract Act (VVG) allows the third party beneficiary to bring a direct action:
- in the case of compulsory third-party liability insurance (for example, motor third-party liability insurance);
- if the policyholder is insolvent; or
- if the location of the policyholder is unknown.
Article 108, para. 2 of the VVG stipulates that a liability insurer must not prohibit in its general conditions that the insured assigns his claim for compensation to the third party bringing the action for damages. A ban on assignment can only be agreed individually or in the event of a significant (jumbo) risk. If the assignment is valid, the third party is entitled to claim compensation directly from the insurer. This also applies to directors and officers (D&O) insurance and the assignment of the insurance claim by an insured person to the insured company, which can then bring a direct claim for payment against the insurer.
Late claim notification
Can an insurer refuse cover on the basis of a late notice of loss without demonstrating damage?
Where agreed in the policy, Article 30 LVA (in conjunction with Article 28 LAV) grants the insurer the right to refuse a claim due to late notice. However, this does not apply when the policyholder is able to demonstrate that the late notice does not lead to damage (Art. 28 al. 3 LVA) or the absence of intentional breach or gross negligence. Subject to the transparency and fairness test applicable to terms and conditions, a policy may generally specify or vary the details of the notice of loss required and, in the case of a high-risk (jumbo) policy, also provide for consequences more favorable to the insurer in the event of a breach.
Unjustified denial of complaint
Is an insurer subject to an extra-contractual risk for unjustified refusal of claim?
No. There are no punitive or liquidated damages under German statutory law for a wrongful denial of a claim. However, the policyholder may have grounds to claim damages under general contract law. In addition, it is likely that default interest will become payable on the debt.
What triggers a liability insurer’s obligation to defend a claim?
The civil liability insurer freely decides to compensate the third party or to defend the claim, without being subject to the instructions of the policyholder or the insured person. A third party claim must normally be notified by the policyholder within one week of becoming aware of the potential third party claim and the underlying circumstances, or as soon as possible after receipt of the opinion of the court on the legal action of a third party (Article 104, VVG). The civil liability insurer must then request all necessary information and act accordingly.
For indemnity policies, what triggers the insurer’s payment obligations?
The trigger for the insurer’s obligation to pay is usually defined in the relevant policy (the insured event). There is no general and universal definition of an insured event for indemnity policies in German insurance law. Normally, an indemnity insurer will have to decide whether to pay or deny a claim when the relevant information is available regarding the insured event and the extent of its (potential) payment obligation.
Is there a period beyond which a life insurer cannot dispute coverage based on a misrepresentation in the application?
There is no specific time limit for life insurers, and the same rules apply to the consequences of pre-contractual misrepresentation as for non-life policies.
Are punitive damages insurable?
German damages law is governed by the concepts of compensation and restitution. Thus, he does not recognize punitive damages. Therefore, the question whether such claims are insurable does not arise in domestic law, but from time to time with respect to foreign judgments. For claims arising from other jurisdictions, there is no prohibition or legal authority that would prevent coverage for punitive damages. Many insurance policies, however, contain a respective exclusion. Where the cover of punitive damages is prohibited by foreign law as a matter of public policy, this may also have an effect on insurability under German law (e.g. where the case would, under German law as an intentional criminal offence).
Insurer Excess Obligations
What is the obligation of an excess insurer to “stand down and defend” and pay a claim, if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits?
There are no specific legal provisions or other authorities on this point. The answer will largely depend on the provisions of the franchise policy. In international insurance programs, policyholders will normally try to negotiate a discount.
Lack of self-insurance
What is an insurer’s obligation if the policy provides that the insured has a deductible or self-insured deductible and is insolvent and unable to pay it?
No specific authority exists in German law regarding the differences between a self-insured retention and a deductible.
What is the order of payment priority when there are multiple claims under the same policy?
In the event of multiple claims under a compulsory civil liability contract, Article 118 of the LVG contains an order of priority between bodily claims and damage not covered (for example, under another insurance policy). insurance or social security), and the claims of the insured on appeal requests. For all other liability policies, § 109 of the VVG provides that the insurer must distribute the available sum insured proportionately among all claims which are reasonably to be expected. The subject frequently arises in the event of multiple policyholders under a D&O policy covering several managers and members of the supervisory board, because the German Federal Supreme Court (BGH) has so far not had the opportunity to determine the applicable principles.
Allocation of payment
How are payments split between multiple policies triggered by the same claim?
With regard to the distribution of payments between several policies by the same insured, no general rule applies. The valuation normally depends on the wording of the policy, the type of risk and the merits of the case. There is generally no equivalent to the methodology developed, for example, by US courts.
Disgorging or restitution
Are restitution or restitution claims insurable losses?
So far, there is no clear legislative provision or authority. Normally, liability policies do not cover these losses as they are not considered damages under German law. If reimbursement or restitution is the result of an intentional illegal act (which is quite a broad concept in German law), the loss would normally not be insurable. Uncertainties remain regarding unintentional illegal acts.
How do the courts determine if a single occurrence resulting in multiple injuries or claims constitutes more than one occurrence under an insurance policy?
Subject to the transparency and fairness applicable to standard clauses under general contract law, serial loss clauses are normally valid. Otherwise, no general rule or methodology applies. The German insurance contract law does not contain any general provisions on pooling. For certain compulsory insurances, the statutory law defines the number of minimum limits.
Cancellation based on anomalies
Under what circumstances can inaccurate statements in the application serve as a basis for cancellation?
In the event of fraudulent inaccuracy or non-disclosure, the insurer is entitled to cancel the contract retroactively within one year from the discovery of the inaccuracy. Alternatively, a retroactive rescission (or withdrawal) normally has a number of requirements, including (1) proper warning of the consequences of non-disclosure; (2) failure to disclose a written question from the insurer relating to a material risk factor; and (3) exercise of the right of termination by the insurer within one month of effective knowledge. When the policyholder can demonstrate the absence of gross negligence, the insurer is, within one month of effective knowledge, only authorized to terminate the contract for just cause, and without retroactive effect. . Cancellation, rescission and rescission rights should not be exercised if the insurer or its agent was aware of the risk at the time of underwriting, or would normally cover the relevant risk on more onerous terms (for example, at a higher premium, or subject to exclusions) which will, at the request of the insurer, be applied retroactively. These rules also apply to professional insureds but can be expressly waived by the parties in the case of a high-risk (jumbo) policy, normally by means of an individually negotiated provision.