This chapter provides insight into the legal sources that Austrian courts apply in cases of insurance litigation, the legal framework of the law applicable to insurance agreements, the difficulties seen in cases where an international insurer is the defendant to a claim for coverage and a recent legislative change to the insured’s right of withdrawal from an insurance agreement.
II THE LEGAL FRAMEWORK
i Sources of insurance law and regulation
The three main sources of law are legislation, broadly acknowledged templates of general terms and conditions, and precedents.
The substantive insurance law is primarily governed by the Insurance Contract Act.2 In addition, certain advice and information obligations of insurers towards insureds are stipulated in the Insurance Supervision Act 2016.3 For certain types of insurance (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.
The Insurance Contract Act is, in general, applicable both in consumer and non-consumer contracts without distinction and also to large risks. It aims at protection of 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, specific types of insurance either do not fall under the scope of the Insurance Contract Act at all (reinsurance and marine insurance),4 or are not subject to its restrictions (transport insurance of goods, credit insurance and insurance against exchange loss).5 A legislative change in 2018 concerned a simplification of the several rights of withdrawal from insurance agreements.
In addition, general insurance terms and conditions play a key role. The model insurance terms are developed and published by the Austrian Insurance Association (VVO),6 and although these are not binding, they are usually adopted by Austrian insurance companies and incorporated into insurance contracts with minor changes. The most recent model terms developed by the VVO cover cyber risks (see also Section V).
For these reasons, Austrian case law on insurance agreements predominantly deals with legal questions related to the model insurance terms, while case law related to wordings that have an international background, such as directors’ and officers’ liability insurance, rarely exists. Although court judgments in Austria 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 the Supreme Court of Justice of the Republic of Austria, which is the highest instance in civil and criminal matters. Within the Supreme Court of Justice, a specific senate (i.e., the seventh senate as specialist senate) handles disputed insurance contract cases.7
As a side note to this chapter, it should at least be mentioned that as far as insurance regulation is concerned, the Insurance Supervision Act 2016 is the primary source of law, and conducting insurance business in Austria requires the holding of a relevant licence. Depending on whether the applicant is a domestic company or a third-country insurer, the Austrian Financial Market Authority (FMA)8 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 freedom-of-establishment basis through a local branch. The ongoing supervision of the insurance market in Austria is also carried out by the FMA.
ii Insurable risk
Austrian law does not define the term ‘insurable risk’, but international legislative developments such as the Foreign Account Tax Compliance Act and the General Data Protection Regulation have posed again the question of whether insurance can be taken out against a specific (e.g., administrative) fine. The current answer under Austrian law, which dates back to a ruling of the Supreme Court of Justice of 23 January 1917,9 is that such fines are deemed to be uninsurable because any agreement between a tortfeasor and a third party concluded before an infringement whereby the third party shall be obliged to compensate the tortfeasor for any future penalty, is an immoral contract.10
Furthermore, Section 68 of the Insurance Contract Act contains a provision that deals with cases the facts of which are that either no insured interest existed from the beginning or that an insurable interest ceased to exist during the term of a policy. The relationship between the insured and the insured asset is such an interest. An insured interest does not exist if either (1) no insured who carries such an interest exists, or (2) the insured asset or the relationship to this asset does not exist at the outset of the insurance agreement, or it certainly will not exist in the future.11 As at 19 July 2019, in the database of the Legal Information System of the Republic of Austria12 there are nine judgments of the Supreme Court of Justice and one judgment of the highest appellate court in Germany for civil and criminal cases, between the years 1938 and 2013, that relate to Section 68 of the Insurance Contract Act,13 and this reflects that this statutory provision is not highly disputed in courts.
iii Fora and dispute resolution mechanisms
Insurance disputes (i.e., disputes over the content or scope of a private insurance agreement), are typically heard by the state courts. Even though arbitration proceedings are recognised, it does not play a key role in Austrian insurance practice. The same is true for mediation proceedings, which are recognised by Austrian courts, but it is not mandatory for a party to go through mediation before filing a lawsuit in a contested insurance matter. As stated in Section II.i, the highest instance in contested insurance matters is typically the seventh senate of the Supreme Court of Justice.
But wordings can contain a stipulation for the parties to go through an expert procedure. The extent to which agreeing on an expert procedure in an insurance contract may be admissible is stipulated in Section 64 of the Insurance Contract Act. In practice, such a procedure is concluded by the parties within the framework of the general terms and conditions, and this is harmonised within the several types of insurance through the VVO model conditions. The following general insurance terms and conditions contain provisions, inter alia, for an expert procedure: non-life insurance,14 legal expenses insurance15 and accident insurance.16
The decision of an expert procedure shall be binding on the parties, except if the decision obviously deviates from actual facts.17
III RECENT CASES
In 2019, the Supreme Court of Justice released, inter alia, two rulings worth mentioning in this edition of The Insurance Disputes Law Review because the Supreme Court modified case law (as explained below) and reaffirmed previous but criticised precedent (as described in the second case below).
The first case, court file No. 7 Ob 137/18z, dated 24 April 2019, deals with the undisputed key facts that an insured informed its insurer to cancel an insurance agreement, which the insurer confirmed to the insured in writing in May 2004. Nevertheless, and without giving reasons for its decision, the insurer collected from its former insured for a further 12 years (i.e., until August 2016) a monthly amount of €48.25 through the automatic debit transfer system. While the former insured requested repayment of all unjustified collected amounts, the insurer repaid only the amount it had collected in the three most recent years (i.e., during the period 2013–2016). Consequently, the former insured filed a lawsuit for repayment of the remaining unjustified collected amounts during the period 2004–2013. The Supreme Court deviated from existing precedent and dismissed the lawsuit on the basis that the claim was time-barred.
Noting that Section 12 Subsection 1 of the Insurance Contract Act stipulates a three-year respite concerning claims arising from an insurance agreement, the former insured had based its lawsuit seeking repayment from the insurer on the Austrian law of unjust enrichment because Section 1479 of the General Civil Code18 stipulates a 30-year respite, in general, for reclaiming unjustified payments and, as the insurance agreement at hand had been effectively cancelled, the claim for repayment did not result from an insurance agreement.
In recent years, however, Austrian courts have taken a more diversified approach19 and, for the respite of a claim for unjust enrichment, they currently also take into consideration the claim that has been substituted by the claim for unjust enrichment. Accordingly, the application of a three-year respite for reclaiming (1) unjustified paid interest,20 (2) unjustified user fees levied by a network operator,21 (3) an overpayment of rent,22 and (4) a periodically paid unjustified leasing fee23 has been established by the Supreme Court (although it has been criticised for this). Where claims for unjust enrichment supersede these types of claims, therefore, the Supreme Court has invoked Section 1480 of the General Civil Code, which stipulates a three-year respite for claiming overdue annual benefits, such as interest and annuities.
The application of this case law was deemed ill-founded in a case where the facts at hand of an unjustified collection of a premium after the cancellation of an insurance agreement were undisputed; as a result, the Supreme Court precedent24 that claims for repayment of mistakenly paid insurance premiums that fall outside the scope of Section 12 of the Insurance Contract Act lapse after 30 years was ruled unsustainable.
A second case (7 Ob 242/18s) of the Supreme Court of Justice, which was made public in April 2019, concerned the legitimacy of two clauses in general conditions for legal expenses insurance. One of the clauses, which will be looked at in more detail, granted the insurer the right to cancel or amend the insurance agreement for an ‘increase in risk’ in the event of new or changing case law whereby an insured’s silence constituted consent.25 The clause was deemed to be unlawful, grossly discriminatory and non-transparent according to the Supreme Court of Justice.26
In its reasoning, the seventh senate of the Supreme Court held that the clause concerned did not contain any restrictions whatsoever regarding a ‘significant circumstance’ that would trigger the legal consequences of the clause, and therefore the clause was in breach of Section 29 of the Insurance Contract Act, from which an insurer cannot deviate to the detriment of an insured. If a clause stipulates that an insured’s silence constitutes consent to an amendment of an insurance agreement without limitation, then that clause violates the transparency requirement because, in general, the legal consequence of such a clause would be the possibility of unilaterally amending the contract.
Finally, an unpublished recent appeal decision of the Higher Regional Court in Innsbruck (4 R 82/19v) dated 5 July 2019 should remind everyone involved in insurance litigation that occasionally legal questions of civil procedure law may determine success or failure in a coverage dispute. An athlete had taken out professional sports insurance and sought coverage for the consequence of incapacity to perform sports after a training accident. The insurer’s denial of coverage based on medical evidence that the accident had not caused the termination of the insured’s professional career resulted in the insured filing a lawsuit with the Austrian courts in December 2016. After the court-appointed medical expert confirmed in July 2018 the insurer’s position that the bodily injury of the insured had healed after the training accident, the insured brought in January 2019 the new arguments that (1) illness triggers the policy as well, (2) incapacity to perform as an athlete results from covered illness, and (3) the insurer is therefore liable under the policy. The court dismissed the case with costs without taking further evidence (i.e., on the insured’s alleged illness) on the basis of an objection against an amendment of claim under civil procedure law, and the court of appeal confirmed the decision of the court of first instance. While, in general, civil procedure law allows for an amendment of claim,27 an amendment may be objected to if it goes beyond the scope of the initial lawsuit or if the proceedings are ripe for decision.28 In the case at hand, the claim for insurance proceeds had been based solely on the peril of an accident, with covered illness not being raised by the insured at all until January 2019, almost five years after the insured had stopped practising competitive sports. While one would instantly consider these facts to constitute a late notification of an insured event, thereby releasing the insurer from paying out under the insurance policy, the courts, in view of the insured’s objection, had to resolve the case by applying civil procedure law, which finally resulted in the insurer being released from its obligation to perform.
IV THE INTERNATIONAL ARENA
The local standard may be most accurately described as having three principal characteristics: an Austrian insured would expect (1) the policy wording to be in German or, in the case of a bilingual special insurance wording, the German wording prevails, (2) that no arbitration clause exists, and (3) that Austrian law applies.
However, international insurers serving the Austrian and German market sometimes apply German law to their insurance agreements with Austrian insureds. For insurance intermediaries and the Austrian courts, this does not bring much surprise or complications in the application of the law because the Austrian Insurance Contract Act historically stems from the German Insurance Contract Act, with minor linguistic variation.
If foreign law applies and Austrian courts have to decide a dispute under foreign law, then the judge would appoint a foreign law expert to gain an understanding of how the legal question would be answered under that foreign law.29 This procedure is not necessary for German law, as the official language is identical in both countries and both insurance contract acts are rather similar.
Furthermore, it should be mentioned that lawsuits against international insurers are on occasion filed incorrectly against a party that is not the risk carrier (e.g., especially if the insurer had delegated underwriting authority or the policy was not issued by the insurer). These situations have resulted in confusion and the wrong defendant being named. In fact, if the affected insurer gains knowledge of such a situation, it depends on its defence strategy on whether it clarifies the shortcoming and commonly agrees with the parties to the insurance dispute to change the defendant, or if it lets the wrong defendant defend the case with the argument that the defendant is not the risk carrier and therefore the claim is to be dismissed. If, however, the claimant only misspelled or wrongly named the correct insurer, the court is entitled to adjust the naming of the defendant, according to Section 235 Subsection 5 of the Code of Civil Procedure.
Since Austria is a member of the EU, jurisdiction in international insurance disputes is determined by the rules of Brussels I Regulation (recast).30 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 it is domiciled (including where it 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 it 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.
Regarding international insurance litigation falling within the scope of the Rome I Regulation,31 the choice of law is limited especially by the restrictions 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 law of the country where the policyholder has his or her habitual residence;
- in the case of life insurance, the law of 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.
Article 7 of the Rome I Regulation provides that if the parties would be 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. (This is the case in Austria, where, pursuant to Section 35a of the Private International Law, the parties may choose any law as the law applicable to the insurance contract.) However, if the insurer carries out its business or otherwise directs its activities to the state of residence of the insured, then by choice of law the insured 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 Code of Civil Procedure 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 (insurance matters are not excluded). The arbitration agreement must be in writing and indicate the parties’ will to submit to arbitration. In consumer contracts, however, stricter requirements exist.
V TRENDS AND OUTLOOK
As mentioned above, and in more detail in the previous edition of The Insurance Disputes Law Review, a legislative change in 2018 concerning the modification of the rights of withdrawal from insurance agreements was ultimately triggered by a decision of the European Court of Justice (ECJ) in 2013, based on a German preliminary ruling procedure.32 In 2018, two Austrian courts filed for a preliminary ruling in relation to an insured’s withdrawal right and since then numerous related civil proceedings have been stayed. The ECJ is expected to hand down its preliminary ruling by the end of 2019, thereby providing life insurers with greater clarity in respect of their payment obligations towards insureds who were initially instructed inaccurately about their withdrawal rights.
1 Ralph Hofmann-Credner is counsel at Wolf Theiss Rechtsanwälte GmbH & Co KG.
2 Versicherungsvertragsgesetz – VersVG.
4 Section 186 Insurance Contract Act.
5 Section 187 Subsection 1 Insurance Contract Act.
6 Model insurance terms and conditions in German can be found on the website of the VVO: www.vvo.at/vvo/vvo.nsf/sysPages/musterbedingungen.html.
7 The scope of the several senates within the Supreme Court of Justice can be accessed here: www.ogh.gv.at/der-oberste-gerichtshof/geschaeftsverteilung/.
8 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.
9 ZBl 1918/348.
10 RIS – Justiz RS0016830.
11 Ertl in Fenyves/Schauer (Editor), VersVG § 68 Rz 5.
12 The Legal Information System of the Republic of Austria is a platform and database providing information on Austrian law.
13 Search result on the website of the Legal Information System of the Republic of Austria:
14 Article 8 of the General Conditions for Property Insurance (ABS 2012).
15 Article 9 of the General Conditions for Legal Expenses Insurance (ARB 2015).
16 Article 16 of the General Conditions for Accident Insurance (AUVB 2008, Version 06/2017).
17 Section 64 Subsection 2 and Section 184 Subsection 2 of the Insurance Contract Act.
18 Allgemeines Bürgerliches Gesetzbuch – ABGB.
19 Supreme Court of Justice 30.5.2017, 8 Ob 110/16h.
20 Supreme Court of Justice 24.6.2003,4 Ob 73/03v; RIS – Justiz RS0117773.
21 Supreme Court of Justice 30.3.2009, 7 Ob 269/08x.
22 Supreme Court of Justice 25.8.2015, 5 Ob 25/15k.
23 Supreme Court of Justice 18.5.2016, 3 Ob 47/16g.
24 Supreme Court of Justice 10.9.2003, 7 Ob 191/03v.
25 Allgemeine Bedingungen für die Rechtsschutz-Versicherung (ARB 2005 Art 13.5).
26 Supreme Court of Justice 27.2.2019, 7 Ob 242/18s.
27 Section 235 of the Code of Civil Procedure (Zivilprozessordnung).
28 RIS – Justiz RS0039594.
29 Section 4 of the Private International Law (internationales Privatrecht – IPR–Gesetz).
30 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.
31 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).
32 ECJ 19. 12. 2013, C-209/12, Endress/Allianz.