Insurance and reinsurance law
i Sources of law
The most relevant source of insurance law is the Austrian Insurance Contract Act (VersVG).11 The general provisions of the VersVG are set out in Sections 1 to 49 and cover all (regulated) types of insurance contracts. In addition to the general section, the VersVG sets out specific rules for different insurance branches such as indemnity, fire, personal liability, legal protection, life, private health and casualty insurance.12
However, the VersVG does not regulate every single aspect of an insurance contract. Also, it explicitly does not apply to certain types of insurance, including maritime insurance and all types of reinsurance contracts. Even for contracts covered by the VersVG, the Austrian Civil Code (ABGB)13 is an important supplemental source of law.14 In addition, certain provisions of the VAG may be of relevance for drafting and interpreting insurance contracts, as the VAG, for example, contains rules on the insurer’s information obligations towards the insured.
As mentioned in the introduction, model terms published by the VVO play a key role with regard to the Austrian insurance market and, in this context, may be taken as a ‘source of law’ as well.
Court rulings are not considered to be a source of law, as they are generally only binding for the parties involved. However, judgments – especially when handed down by higher instance courts – can have considerable impact. This is because lower instance courts usually rule along with the line of jurisprudence set out by the higher instance courts. For this reason, the case law of the Austrian Supreme Court of Justice, the highest court on civil law matters in Austria, is of particular importance. Insurance related disputes are, at Supreme Court level, generally adjudicated by the court’s seventh senate.
ii Making the contract
As stated above, the general legal framework relevant to insurance contracts (e.g., regarding formation, necessary content, the parties’ rights and duties and termination) are regulated by the VersVG and the ABGB. Like any other type of contract, the conclusion of insurance contracts requires concordant declarations by the insurer and the insured. Despite the general freedom of contract, the provisions of insurance contracts must not infringe on the boundaries set by mandatory law (e.g., violation of moral principles according to Section 879 ABGB) and must fulfil compulsory legal requirements, where applicable.15
The ‘application model’, typical for the Austrian insurance market, foresees that customers apply for insurance by sending an application (standard forms) to the insurance undertaking. The insurer accepts the application by sending back the insurance policy within six weeks. For the contract to be effective, a signed copy of the policy must be sent to the insured, usually on paper. Where explicitly agreed upon, pursuant to Section 5a VersVG, communication can also be handled electronically.
Prior to the taking out of insurance, comprehensive pre-contractual disclosure duties require the policyholder to provide information on all aspects relevant to the insurer’s decision on whether or not (or under what conditions) to underwrite the specific risk. If the insured intentionally refrains from notifying the insurer of an important circumstance, the insurer has a right to terminate the insurance contract.16
iii Interpreting the contract
In principle, the interpretation of insurance policies and conditions does not differ from the interpretation of any other contract or general terms and conditions. This means that the ABGB is the main legal basis for interpreting insurance policies. Consequently, the most relevant provisions are the general provisions set out in Section 864a ABGB (exclusion of unusual content) and Section 879 ABGB (violation of moral principles).
While Austrian statutory law does not provide for insurance-specific principles of interpretation, the existing insurance-related case law must be taken into account. According to settled case law of the Austrian Supreme Court, insurance policies are to be interpreted objectively (i.e., based on their wording and its interpretation by an average and reasonably well-informed insured), unless a specific provision has been the subject of individual negotiation between the parties.17 Of course, the interpretation of a specific clause generally depends on the particularities of the individual case. Thus, despite extensive case law on the interpretation of insurance contracts, the individual meaning and scope of insurance conditions often give rise to controversy and disputes. While the principles on the interpretation of insurance conditions established by doctrine and case law do give guidance, certainty, to the degree possible, can ultimately only be determined by the courts. Therefore, experience and pertinent knowledge of the case law is needed to make use of the overlapping general principles and rulings.
The occurrence of an insured event will usually have to be determined based on the wording of the relevant policy. Although the definitions of an insured event vary in detail, most will contain at least three elements. The first element concerns the specification of the event triggering the insurance (e.g., the occurrence of the relevant misconduct, negligence or damage itself). The second element defines how this event is to be connected with the insured risk. Lastly, the third element divides the claims asserted by the third party into justified claims (thus triggering the insurer’s duty to satisfy) on the one hand and, on the other, unfounded claims (triggering the insurer’s duty to defend, where applicable, such as in liability insurance products).18 Most policies not only limit the maximum insurance payout per occurrence and in total per insurance period, but also contain a clause on serial loss. The latter deems multiple claims stemming from one and the same cause as one single occurrence.
iv Intermediaries and the role of the broker
The implementation of the Insurance Distribution Directive (IDD)19 has brought about profound changes, inter alia, as to the day-to-day practice of all insurance agents and insurance brokers,20 as well as changes regarding the supervision of insurance intermediaries by the FMA. The IDD itself is broad in scope and, of course, not limited to the regulation of insurance mediation by insurance brokers and agents but rather also covers the distribution of insurance products as a whole. The Directive’s main regulatory objective is to improve the protection of the insured. For this purpose, the IDD seeks to avoid any conflicts of interest as regards the intermediary’s remuneration and imposes extensive disclosure and advisory obligations on the intermediary. Independent of the IDD’s transposition into national law, the VAG already provides the FMA with a range of powers to supervise and control intermediaries (e.g., to sanction the unauthorised sale of insurance products).21 In addition, the Professional Association of Insurance Brokers, a sub-organisation of the Austrian Federal Economic Chamber, sets out professional standards mandatory to all Austrian insurance brokers. As from January 2017, a disciplinary commission supervises compliance with these standards.
Policyholders are required to notify the insurer without undue delay once a (potentially) insured event occurs22 and have to provide the insurer with any information or document required to establish the insured event or the extent of the insurer’s obligation to pay.23 The notice is to be addressed either to the insurer directly or to an authorised agent or broker responsible for the contract. When more than one insurance company is involved, notice to the lead insurer may suffice, depending on the terms of the contract. In addition to these general stipulations of the VersVG, the insurance conditions often contain further contractual rules in connection with providing notice. These may include definite time limits or form requirements. The notice itself does not have to contain an in-depth description of the event.
Where the conditions set out in the policy are not met, the insurer will usually deny coverage pursuant to Section 12 VersVG. Such a denial of coverage generally starts the three-year limitation period. One particularity of Austrian Insurance Contract law in this regard concerns the ‘qualified denial of coverage’ pursuant to Section 12 Paragraph 3 VersVG, which, provided all formal conditions are met, triggers a one year cut-off period. In this case, the insured has to bring a claim before a competent court before the end of this cut-off period, otherwise the insured is precluded from asserting the claim for coverage against the insurer once and for all.
The reasons for the emergence of insurance disputes and subsequent court proceedings are manifold. Many insurance-related causes of actions relate to an insured’s reluctance to accept a denial of coverage. Building on the depictions above, the vast majority of insurance disputes (not necessarily specific to Austria) stem from the diametrical interpretation of insurance policies by the parties involved, especially as the complexity of policy wordings has grown considerably in recent years. This very general and common problem of a provision’s unintentional room for interpretation is sometimes amplified by an idiosyncrasy of the Austrian insurance market. As already stated in the introduction, insurance conditions are often not tailor-made for the Austrian market in what would be a costly and time-consuming process, but rather are copied from other jurisdictions and only adapted cursorily. The fact that many insurance products have become more elaborate and complex owing to legal and market developments adds to the problem – this is especially true with respect to financial lines policies and industry insurance. Of course, many insurance-related disputes also concern the existence and legal consequences of breaches of obligations and duties by the insureds under the policy concerned (e.g., a subsequent rescission of the insurance contract or a possible revocation of cover by the insurer).
Litigation regarding reinsurance disputes rarely occurs; at this level, disputes are regularly settled amicably out of court.