Austria accommodates large dominant local insurers with strong ties to the retail business, as well as international specialist insurers who benefit from the geographical advantages of Austria as a hub for the central-eastern Europe and south-eastern Europe markets.
The Austrian insurance industry employs approximately 29,000 people, whereby the Austrian Insurance Association (VVO)2 represents the interests of all private insurance companies active in Austria. The VVO is also registered in the Austrian lobbying register.3 Membership in the VVO is voluntary and, according to the homepage of the VVO, there are 126 members.4
In October 2002, insurers that are members of the VVO established a market terrorism pool (Terrorpool) as a private scheme that covers risks with effect from 1 January 2003. Terrorpool is a mixed coinsurance and reinsurance pool, with no government participation. It acts as reinsurance, with the direct writing insurer issuing a separate terrorism policy and then ceding the business to it, and is open to insurers and reinsurers writing business in Austria. Participation in the pool is not compulsory, and insurance of the terrorism risks covered by the scheme is voluntary.
On 9 May 2018, the VVO published its annual report for 2017, which reflects a premium volume of €17.1 billion generated by Austrian licensed insurers of local direct contractual insurance businesses, whereas insurance payments for the same period amounted to €14.56 billion.5
Conducting insurance and reinsurance business requires the holding of the respective licence. Depending on whether it is a domestic company or a third-country insurer, the Austrian Financial Market Authority (FMA)6 grants a licence upon application and fulfilment of preconditions. A European Economic Area (EEA) insurance company holding a licence and situated outside Austria does not require a further or domestic insurance licence. The EEA insurer may, upon notification of the competent supervisory body, conduct insurance business in Austria on a freedom-of-services basis or on an establishment basis by opening a local branch. The ongoing supervision of the insurance and reinsurance market is also carried out by the FMA.
Since implementing the Solvency II Directive,7 the Insurance Supervision Act has been revised and came into force on 1 January 2016 (VAG 2016).8 The Insurance Distribution Directive (IDD)9 is implemented in Austria predominantly by two legislative acts: the Insurance Sales Law Amendment Act 2018, which came into force on 1 October 2018; and the Insurance Sales Act, which was approved by Parliament on 12 December 2018. It is an overriding objective of the Austrian legislature to avoid 'gold-plating' when transposing supranational law.
III INSURANCE AND REINSURANCE LAW
i Sources of law
The substantive insurance law is primarily governed by the Insurance Contract Act (VersVG). In addition, certain advice and information obligations of insurers towards insureds are stipulated in the VAG 2016. For certain insurance types (e.g., motor liability insurance), special statutes exist. Where the insurance statutes do not provide for any special rules, general civil law provisions of the Civil Code apply: for example, general rules regarding the conclusion, interpretation and rescission of a contract.
The VersVG is, in general, applicable both in consumer and non-consumer contracts without distinction. It aims to protect the insured as the weaker party, mainly by means of various coercive provisions that cannot be deviated from to the detriment of the insured. However, reinsurance does not fall within the scope of the VersVG; therefore, reinsurance contracts are not subject to those restrictions, and may be concluded according to general principles of contract law (the Civil Code and the Business Enterprise Code).
In addition, general insurance terms and conditions play a key role in insurance law. Model insurance terms are published by the VVO,10 and although these are not binding, they are usually adopted by insurers and incorporated into insurance contracts with only minor changes. In 2018, the VVO published its model terms for cyber risk insurance.
Although court judgments are, in general, only binding on the parties involved in a dispute, case law plays an important role. Furthermore, the courts of lower instance have to observe and apply the judicature of courts of higher instance, such as the courts of appeal and of the Supreme Court of Justice of the Republic of Austria (the Supreme Court), which is the highest instance in civil and criminal matters.11
ii Making the contract
According to the general rules on the conclusion of contracts, the making of an insurance contract requires an offer and an acceptance. If the insured places his or her offer via a standard application form of an insurer, then the offer of the insured shall be binding for a maximum of six weeks unless a longer period has been individually negotiated between the insurer and the insured.
An insurer is obliged to furnish an insured with a copy of the relevant terms and conditions before application; provide the information required by the VAG 2016 (see below); and hand out to the insured a copy of his or her application, and instruct him or her that the failure of the insurer to provide these documents and information entitles him or her to rescind the contract (within two weeks or one month of receipt of the documents and information respectively).
The insurer may accept the offer of the insured simply by producing a policy that will be handed over to the insured. If the policy differs from the offer (application) of the insured, the insured is entitled to object to the deviations in writing within one month of the receipt of the policy. The insurer is obliged to point out any deviations in the policy, and inform the insured about his or her right to object. Provided that the insurer has informed the insured properly, the law assumes that the insured accepts any deviation if he or she does not object.
Section 16 et seq. of the VersVG stipulate pre-contractual notification obligations for the insured.
Thereby, before the conclusion of the contract (i.e., acceptance of the offer by the insurer), the prospective insured is obliged to provide the insurer with full and complete information on circumstances relevant for the assessment of the risk. The prospective insured has to disclose all facts that are relevant for the risk assessment even if the insurer did not ask for a specific piece of information. However, an insured is only obliged to reveal facts that he or she has actual knowledge of and that are substantial regarding the terms of the contract (e.g., facts relevant for the calculation of the premium or the exclusion of certain risks). Information that the insurer explicitly asked for in writing is presumed to be relevant by law.
If the insured fails to comply with the information obligations, then the insurer is entitled to rescind the contract within one month of gaining knowledge of the violation of the information obligation. However, the right of recession depends on various factors, such as:
- the degree of fault of the insured;
- the relevance of the information;
- to what extent the information has been specifically asked for by the insurer; and
- whether the insurer was already familiar with or has waived his or her right to be informed about the relevant circumstances.
However, the insurer is obliged to grant coverage to the insured in spite of recession of the contract if and insofar as the information withheld by the insured did not have any influence on the occurrence of the damage event or the amount of indemnification.
Information obligations of the insurer prior to the conclusion of the contract
According to the provisions of the VAG 2016, the insurer must provide the insured with specific information in writing prior to the conclusion of the insurance contract, such as:
- the name, head office address and legal form of the insurance undertaking and, where appropriate, the branch by which the contract will be concluded;
- the name and address of the authority supervising the insurer; and
- the complaints procedures.
As of 1 January 2019, the VersVG contains further information requirements and a modified rescission right for an insured (Section 5c).
iii Interpreting the contract
Austrian law contains specific rules on the interpretation of a contract or a declaration of intention of a party to an agreement.12 As regards the interpretation of general insurance conditions, the Supreme Court constantly rules that such an interpretation has to be aligned to the understanding of an average prudent insured. Any clause limiting the covered risk shall be ineffective to the extent that an insured would not be able to understand the scope without any legal qualification.13 Finally, the burden of proof for the existence of an exclusion lies with the insurer.14
An incorporation of terms of insurance follows the general rule of concluding an agreement. Except where the law stipulates a written form or a higher degree of legal certainty (e.g., a notary public confirming the identity of a party to an agreement), parties may freely agree orally on certain provisions to a contract. Likewise, not all provisions that are contained in a document, even if this is attached to an agreement, are deemed to be agreed upon by the parties and be effective. It is the understanding of the Supreme Court that general terms and conditions shall be applicable if they have been sufficiently clearly agreed upon. It is insufficient to simply refer to general terms and conditions in the offer signed by the customer and in the policy. On the other hand, it is not necessary for a copy of the general terms and conditions to be physically handed over to the customer or insured for the agreement to be effective. There is no differentiation between consumer and business contracts in this regard.15
iv Intermediaries and the role of the broker
Brokers and agents play a key role in generating business for insurers. The activity of an independent insurance intermediary (both as direct and reinsurance broker) is regulated under the Trade Regulation Act 1994 (GewO). An insurance intermediary must hold a trade licence granted by the local trade regulation authority, and must be registered in the register of intermediaries (i.e., the Austrian Business Licence Information System (GISA)). A national list of registered intermediaries is available on the GISA website.16
To be registered as an insurance intermediary, the applicant must provide proof of his or her professional competence (e.g., a proper educational background). In addition, the insurance intermediary has to obtain compulsory professional indemnity for insurance intermediaries (see Section 137c of the GewO) or an equivalent guarantee of coverage. Intermediaries from EU or EEA Member States may do business in Austria on a freedom-of-services basis upon notification of the Austrian trade authority. Intermediaries from EU or EEA Member States that want to establish a branch in Austria on a freedom-of-establishment basis must provide the Austrian authority with their registration documents from the state of origin, and evidence of compulsory professional indemnity insurance.
Sections 137f to 137h of the GewO, which, inter alia, reflect the requirements set out in the EU Insurance Mediation Directive, provide for specific conduct rules for the insurance intermediary and specific obligations regarding pre-contractual disclosure. The information must be provided to the customer on paper or in some other durable medium, in a clear and accurate manner comprehensible to the customer, and in German or in another language agreed by the parties.
Co-insurance (disclosed or hidden) is a common instrument as capacity or risk appetite may be limited. Hidden co-insurance is also commonly used by the larger Austrian insurance companies. In order to keep only a share of the risk in their books, they commonly consult other insurers with respect to a certain risk (in general, if capacity for a certain risk is limited) but issue the policy on their own letterhead.
In cases where an insured event occurs, the insured is, in general, obliged to notify the insurer with undue delay (see Section 33 of the VersVG). The burden of proof that a notification was not timely lies on the insurer. A late notification may release the insurer from the obligation to indemnify the insured, unless the insured proves that he or she is not at fault for breaching his or her obligations, or that the late notification did not have any influence on the assessment of the insured event or the amount of indemnification to be paid by the insurer.
The insured is obliged to provide the insurer with full, complete and correct information. Providing false information intentionally could result in criminal liability of the insured for insurance fraud.
The insurer is due to pay a claim on completion of the necessary investigations (see Section 11 of the VersVG). If investigations of the insured event are not completed within two months of submission of the claim, the insured is entitled to request from the insurer a statement outlining the reasons why the investigations had not been completed to date. If the insurer fails to comply with such a request within one month, the payment of the claim becomes due.
If coverage on the merits is undisputed, then the insured may claim instalment payments from the insurer if the investigations are not completed within one month of submission of the claim (see Section 11(3) of the VersVG). The provisions of Section 11 are coercive and cannot be deviated from by agreement.
Insurance claims in general become time-barred in three years. However, if the insurer denies coverage, he or she may impose on the insured the obligation to file a lawsuit within one year by declaring a 'qualified denial of coverage', otherwise the claim of the insured expires (see Section 12(3) of the VersVG). A qualified denial requires a reasoned denial of coverage by the insurer in writing, along with an express statement of the legal consequences if no lawsuit is filed within one year.
IV DISPUTE RESOLUTION
i Jurisdiction, choice of law and arbitration clauses
Since Austria is a member of the EU, jurisdiction in international insurance disputes is determined by the rules of Brussels I Regulation (recast).17 As a general rule (see Articles 11 to 14), the Regulation stipulates that an insurer may bring proceedings only in the courts of the Member State in which the defendant (the policyholder, the insured or a beneficiary) is domiciled. However, the insurer may be sued in the courts of the Member State in which he or she is domiciled (including where he or she has a branch, agency or establishment); or in the Member State where the claimant (the policyholder, the insured or a beneficiary) is domiciled; or, if he or she is a co-insurer, in the courts of a Member State in which proceedings are brought against the leading insurer. For liability insurance, the insurer may in addition be sued in the courts of the place where the harmful event occurred and may in general be joined in proceedings that the injured party has brought against the insured.
The Regulation sets extensive limits on the inclusion of choice of forum clauses in insurance disputes (however, these clauses do not apply in insurance cases of large risks and some other risks connected with shipping and aircraft). In principle, the parties to an insurance agreement may only depart from the provisions of the Regulation if the choice of forum agreement:
- is entered into after the dispute has arisen;
- allows the policyholder, the insured or a beneficiary to sue in other courts than those set out by the Regulation;
- is concluded between a policyholder and an insurer domiciled in the same Member State with the aim to conferring jurisdiction on the courts of that Member State for damage events that occur abroad; or
- is concluded with a policyholder not domiciled in a Member State.
Regarding international insurance disputes falling within the scope of the Rome I Regulation,18 the choice of law is limited especially by the restrictions as listed in Article 7, Paragraph 3. For contracts covering risks (other than large risks) that are situated in a Member State, the choice of law is limited to the law of:
- the Member State where the risk is situated;
- the country where the policyholder has his or her habitual residence;
- in the case of life insurance, the Member State of which the policyholder is a national;
- for insurance contracts covering risks limited to events occurring in one Member State, the law of that Member State; or
- where the policyholder pursues a commercial or industrial activity or a liberal profession, and the insurance contract covers two or more risks that relate to those activities and are situated in different Member States, the law of any of the Member States concerned or the law of the country of habitual residence of the policyholder.
For compulsory insurance, special provisions apply.
In addition, Article 7 of the Rome I Regulation provides that if the parties are entitled to choose Austrian law, and Austrian law allows greater freedom on choice of law in insurance contracts, then the parties are allowed to make use of this freedom. In Austria, according to the Statute on Private International Law (see Section 35a(1) of the Private International Law Act), the parties may choose any law as the law applicable to the insurance contract. However, if the insurer carries out his or her business or otherwise directs his or her activities to the state of residence of the insured, then by choice of law he or she may not be deprived of the rights granted under mandatory provisions of the law that would be applicable in the absence of choice. In consumer contracts, further limitations exist.
For arbitration clauses, the general norms of the Civil Procedure Code stipulate that an arbitration agreement may be concluded between parties for both existing and future civil claims that may arise out of or in connection with a defined legal relationship (certain matters are excluded, e.g., family law and tenancy matters). The arbitration agreement must be in writing and indicate the parties' will to submit to arbitration. In consumer contracts, stricter requirements exist.
The state court system in civil proceedings consists of a maximum of three domestic stages (i.e., without preliminary ruling procedures at the Court of Justice of the European Union (ECJ)). A lawsuit is filed with the court of first instance in which a case is generally heard by a single sitting judge. With the exception of minor cases, an appeal may be raised to the court of higher instance sitting as a court of appeals with a bench of three professional judges. A further appeal may be filed with the Supreme Court in the event that the legal requirements are fulfilled. The interpretation of a contract (including the interpretation of the scope of a clause in an insurance contract) in general does not allow for filing an appeal to the Supreme Court, because the interpretation of a specific contract has no influence beyond the specific case.19 The alternative is a clause in general terms and conditions that needs to be interpreted and that is commonly used in a similar way.20
Evidence is taken by the court of first instance and encompasses the examination of the parties or parties' representatives in the event of a legal entity being the party, witness examinations, obtaining the expertise of a court appointed expert and analysing any documents filed (in German, or filed in a language other than German together with a certified translation into German) as evidence in a proceeding. The judge is free to take into consideration as evidence everything that is appropriate to prove a certain fact. There is no need for a person to prove his or her legal position in court.
Austrian law recognises the (partial) reimbursement of legal fees by the (partial) losing party towards the (partial) winning party. However, reimbursement of legal representation fees and court fees is capped by, inter alia, the Attorneys Tariff Act irrespective of the fee agreement between a party and its attorney. Certain types of litigation funding by third parties exist, and taking out legal expenses insurance is quite common for Austrian consumers. However, profit sharing in the event of winning a case is not permissible for attorneys under Austrian law.
Arbitration proceedings do not play a key role in Austrian insurance practice. A distinction can be made between arbitration and an expert procedure – the latter can be viewed as a form of arbitration, which is quite popular (see subsection iv).
If the parties do not stipulate a specific procedure (be it individually negotiated or by reference to the rules of an arbitral institution), the law contains a number of default provisions regulating the most important procedural aspects. For example, the law foresees that where there is no agreement between the parties, the number of arbitrators shall be three. Each party shall appoint one arbitrator, and the two party-appointed arbitrators shall nominate the third arbitrator, who shall serve as the chair of the arbitral tribunal. Should one of the parties fail to appoint an arbitrator, or the two party-appointed arbitrators fail to appoint a chair, either party may file a request to the Supreme Court to make the necessary appointment. Austrian law mandates that arbitrators be impartial and independent. The only other restriction that parties must observe is that Austrian judges may not accept appointments as arbitrators. Otherwise, the arbitrators may be freely chosen by the parties to the dispute.
The taking of evidence in arbitral proceedings is generally comparable to the taking of evidence in court proceedings. However, in practice, there are certain differences. Witness evidence is usually provided in the form of written witness statements. An increasingly common practice is that the written witnesses' statements are often tested by party-appointed experts. The possibility to request documents from the opposing party is usually broader than in state court proceedings.
Although there is no strict rule regarding the awarding of costs in arbitral proceedings, arbitral tribunals usually follow the principle 'costs follow the event'. The recovery of costs for legal representation is not limited to a tariff, but is usually awarded based on reasonable hourly fees. The costs of arbitral institutions are, as a general rule, determined based on a fee schedule.
iv Alternative dispute resolution
The extent to which agreeing on an expert procedure in an insurance contract may be admissible is stipulated in Section 64 of the VersVG. In practice, such a proceeding is concluded by the parties within the framework of the general terms and conditions, which is somehow harmonised within the several types of insurance because of the VVO model conditions. Inter alia, the following general insurance terms and conditions contain provisions for an expert procedure: non-life insurance,21 legal expenses insurance22 and accident insurance.23
The general terms and conditions regarding contractual accident insurance contain a clause that either the insured or the insurer, or both, may apply for a medical arbitrator panel, which shall determine the indemnity in the event of disagreement on the type or the scope of the consequences of an accident. According to a ruling by the Supreme Court, in which a clause was deemed illegal because it was disadvantageous to the specifications for the reimbursement of legal fees according to the Civil Procedure Code, an insured shall bear the costs or parts of the costs of a medical arbitration that are unforeseeable for the insured.24 In consequence, certain insurers have adapted this clause of the General Conditions for Accident Insurance by including a maximum amount that the insured shall be obliged to pay in the event of losing the case, and the insurer is obliged to notify the insured of the maximum expense loading prior to the commencement of an expert procedure; the respective VVO model conditions for accident insurance have also been adopted accordingly. The decision of an expert procedure is binding on the parties to that procedure, except in accident insurance cases if the decision apparently deviates from actual facts (see Section 184 of the VersVG).25
Another form of alternative dispute resolution was established by the trade association of insurance intermediaries within the Austrian Economic Chambers, which stipulates that an intermediary can call a mediation body on behalf of one of its insureds who disagrees with a decision of an insurer, most commonly if coverage has been partly denied.26 Whereas a conciliation committee of five experts chaired by a former judge of a higher regional court releases a legal recommendation on the facts that are undisputed between insurer and insured, such recommendation is not legally binding and is unenforceable.27
Complaints from consumers (not commercial entities) may be referred to the Complaint Management Department of the FMA unless they are complaints with respect to insurance contracts written by an EEA insurer. The FMA could also handle such a complaint on a voluntary basis. An online complaint form is available on the FMA website.28
The VVO has established its own permanent point of contact for complaints or legal questions and concerns in relation to insurance contracts.29 If an email is sent describing the facts at hand, the VVO will contact the insurer to enquire about the status of a claim.
Austrian courts recognise mediation proceedings. However, in practice, mediation does not play a key role, and especially not in insurance cases. Austrian law does not stipulate that a party must go through mediation before filing a lawsuit in a contested insurance matter.
V YEAR IN REVIEW
The Austrian legislature was quite active with regard to the insurance industry in 2018. The IDD was implemented by two distinct bills and the right of an insured to withdraw from an insurance agreement was simplified on 1 January 2019, and a respective information template was released.
VI OUTLOOK AND CONCLUSIONS
In 2019, it is anticipated that the ECJ will hand down a further ruling related to the withdrawal right of an insured from a life insurance contract. It is also expected that the number of cyber risk insurance policies sold by Austrian insurers will increase following the new VVO model terms that were presented in 2018.
1 Ralph Hofmann-Credner is a counsel at Wolf Theiss Rechtsanwälte GmbH & Co KG.
4 As at February 2019.
6 The homepage of the FMA is available in English. For a general overview on supervision of insurance undertakings, licensing and notification and other special topics, see www.fma.gv.at/en/insurance.
7 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) as amended by Directive 2014/51/EU.
9 Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast).
10 Model insurance terms and conditions in German can be found on the homepage of the VVO:
12 Section 914 et seq. Civil Code.
13 Legal Information System of the Republic of Austria (RIS) – Justiz RS0112256.
14 RIS – Justiz RS0107031.
15 Supreme Court, 22 April 2014, 7 Ob 20/14p.
17 Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
18 Regulation (EC) No. 593/2008 of the European Parliament and the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I).
19 RIS – Justiz RS0044358 (T45).
20 RIS – Justiz RS0044358 (T3).
21 Article 8 of the General Conditions for Property Insurance (ABS 2012).
22 Article 9 of the General Conditions for Legal Expenses Insurance (ARB 2015).
23 Article 16 of the General Conditions for Accident Insurance (AUVB 2008, Version 06/2017).
24 Supreme Court, 10 September 2014, 7 Ob 113/14i.
25 Supreme Court, 5 November 2014, 7 Ob 148/14m.
27 Anonymised recommendations of the mediation body can be found online: https://www.wko.at/branchen/information-consulting/versicherungsmakler-berater-versicherungsangelegenheiten/empfehlungen-schlichtungskommission-nach-versicherungsart.html.