Insurance law and regulation in Austria

Insurers and reinsurers are authorised and regulated by the Austrian Financial Market Authority (“FMA”). The regulation of insurers and reinsurers operates under the framework of legislation established by the Austrian Insurance Supervisory Act 2016 (Versicherungsaufsichtsgesetz – VAG 2016) and, in addition, is heavily influenced by EU insurance directives and regulations.

 Insurers that have their registered seat in Austria need a license issued by the FMA prior to taking-up and pursuing insurance business in Austria. They must adopt one of the following legal forms to operate: a joint-stock company, a European company or a mutual insurance association; the joint-stock company is the most common in Austria.

The duration of the licensing procedure depends on the individual facts of the case. However, a licence will usually be granted within a four-month period. 

Insurers that have their registered seat in another EEA member state may write insurance in Austria either on a freedom of establishment or on a freedom of services basis. They do not need a licence from the FMA but can passport their home Member State licence into Austria. EEA insurers are subject to the supervision of the regulatory body in their respective home member state. The FMA’s supervision over EEA insurers is limited to requiring them to provide all necessary documents required to verify compliance with Austrian provisions concerning insurance contracts and the accepted principles of proper business operation. 

Insurers that have their registered seat outside the EEA must not conduct insurance business in Austria, unless they have acquired a licence from the FMA and established a branch in Austria. Special rules apply to insurers that have their registered seat in Switzerland

When concluding the insurance contract, the insured is obliged to notify the insurer of all circumstances and information that they know are material for the insurer to write the risk. Any circumstances or information which may possibly influence the insurer’s decision to enter into the insurance contract or under the agreed terms are material. In doubt, any circumstance or information the insurer has explicitly and in written form asked for is deemed material. The case law of the Austrian Supreme Court is strict with the insured on this point and also assumes an obligation of the insured to investigate their affairs in order to obtain the information that is requested from the insurer. 

A breach of the duty of disclosure is deemed to have occurred both if the notification was omitted and if it was incorrect. In both cases the insurer’s remedy is to withdraw from the insurance contract within a month of becoming aware of said violation. The right of withdrawal does not apply if (i) the policyholder is not at fault for omitting the notification or making an incorrect notification, (ii) the insurer knew the true circumstances at the time the contract was concluded or (iii) the insurer expressly waived the notification of material circumstances. In any case, the insurer may not withdraw from the contract after the expiry of the withdrawal period.  

The withdrawal of the insurer leads to the cancellation of the insurance contract. The policyholder no longer has any claims against the insurer for the period after the withdrawal. Furthermore, the parties must repay any benefits received. This principle is pierced in two ways: firstly, the insurer is entitled to the insurance premium for the period from the conclusion of the insurance contract until that point in time when the withdrawal became effective. For the current insurance period, the insurer is therefore entitled to the pro rata premium. Furthermore, in the event that the insured event has already occurred at the time of withdrawal, for example, the insurer becomes aware of the violation of the disclosure obligation during the investigation of the insured event, the following applies: The insurer remains liable to provide coverage for that insured event if the insured can prove that the incorrectly disclosed or concealed circumstance had no influence on the occurrence of the insured event or on the amount of the benefit payable by the insurer under the policy.

Intentional misrepresentation or non-disclosure is considered as deception. Intentional misrepresentation in order to receive unjustified indemnities from an insurer is a criminal offence in Austria.

The nature and scope of a warranty depend on the wording of the insurance contract and the intention of the parties to the insurance contract. The party breaching a warranty may be liable for damages to the other contractual party, which must be assessed on a case-by-case basis.

Parties to an insurance contract may agree on conditions precedent. This means that a mutually defined or determined legal consequence will not take place, unless this condition precedent is met. Breach of the condition precedent prevents the legal consequence from taking place. In addition, the contract party breaching the condition precedent may, under certain circumstances, be liable for damages to the other contractual party, if there is fault on the part of this party and if and to the extent that said breach has caused a damage to the other contractual party. The exact determination of what is a condition precedent and the consequences of its breach will always depend on the wording of the insurance contract and must be assessed on a case-by-case basis.

The insured event is not defined in Austrian insurance contract law but is left to the contractual arrangement by the parties to the insurance contract. In any case, the insured is obliged to notify the insurer of the occurrence of an insured event immediately, i.e. without any undue delay, after becoming aware of it. Special rules in third party liability, livestock, fire and life insurance provide for exact time periods within which the insured must notify the insurer of the occurrence of the insured event.

The late notification of an insured may, under certain circumstances, release the insurer from its liability to pay any indemnity or otherwise perform under the contract, as long as such consequence was previously agreed upon in the insurance contract, which is usually the case in Austria. The burden of proof that the insured knew about the insured event and did not immediately notify the insurer about it (e.g. that the notification was too late) is on the insurer.

The insured will lose cover if the insured has intentionally or with gross negligence failed to notify the insurer in a timely way of an insured event. Insurers remain liable to pay the indemnity if the insured is found to have been negligent only.

Even when the insured acted with intent or gross negligence, the insurer may still be liable to pay the indemnity, fully or partly, if the insured can prove that the failure to immediately notify the insurer of the insured event has not influenced (i) the determination of the insured event, or (ii) the determination or the scope of the insurer’s obligation to perform under the insurance contract.
The insurer cannot rely on a contract provision releasing it from its performance obligations due to an insured’s failure to notify, if the insurer has otherwise become aware of the insured event in a timely manner.

The entitlement to bring a claim against the insurer depends on the insurance contract in question. In case of an individual insurance contract, the policyholder may bring a claim against the insurer. If the individual insurance contract also (or exclusively) covers the interests of a third person (third party insurance), that third person is entitled to bring a claim against the insurer only provided that (i) the policyholder has agreed to this or (ii) the insured person possesses the policy schedule. In addition, following the case law of the Austrian Supreme Court in third party insurance the insured third person may also assert a claim against the insurer if the policyholder recognisably does not want to pursue the claim further without having reasonable grounds for doing so. 

In endowment insurance, the policyholder can designate one or more persons as beneficiaries. This means that the policyholder determines which person or persons are to receive all or part of the insurance benefits after his/her death. This person or persons have a claim against the insurer after the occurrence of the insured event and can assert this claim themselves.

In compulsory motor third party liability insurance the damaged third party is entitled to directly claim compensation from the insurer.

Claims against the insurer may, under certain circumstances, also be asserted by persons to whom the policyholder has validly assigned or pledged the claim under the insurance.

Payment from an insurer is due following the completion of the surveys necessary to determine the insured event and the scope of the performance of the insurer. However, if said surveys have not been completed within two months after the notification of the claim, the policyholder is entitled to request an explanation from the insurer as to why the surveys could not yet be completed. If the insurer does not provide such explanation within a further period of one month, payment becomes due irrespective of whether the surveys of the insurer have been completed.

If the surveys are not finished one month after the insured notified the insurer about the insured event, the insured can claim an advance payment from the insurer equal to the minimum amount that the insurer, considering the facts of the case, will have to pay. This advance payment is deducted from the total claim against the insurer.

If the insurer defaults on payment or in case of late payment, the insured can maintain the insurance contract, request payment and claim default interest of 4% if the insured is a consumer or 8% if the insured is a company. The insured may also claim the default interest that was contractually agreed upon in the insurance contract. Alternatively, the insured may withdraw from the insurance contract. The insurer is then liable to pay damages to the insured, if there is fault on his part. Such damages may consist in the damages caused by the delay of payment or by non-performance.

The limitation period for a claim arising out of an insurance contract is three years and it begins with the time when the claim against the insurer becomes due. If a third party has a claim under an insurance contract, the limitation period starts as soon as the third party is aware of its right to claim. There is a long-stop limitation period of ten years, even if the third party was not aware of its right to claim.

Where the policyholder has made a claim to the insurer, the limitation period will be stayed until the insurer has issued a decision in written form setting out at least the facts and the relevant statutory or contractual provision on which the denial of the claim are based. In any event, there is a long-stop limitation of ten years.

The insurer is released from its obligation to perform under the insurance contract if the claim is not brought to court within a period of one year starting from the date the insurer denies the claim in written form as set out above and informs the insured of the legal consequences of such a lapse in time.

The limitation period will be stayed during settlement discussions and for the time period the insured is unable, without fault on their part, to enforce the claim under the insurance contract in a timely manner.

There are several ways in which cover under a third-party liability insurance is triggered.

The first is on a ‘loss occurring’ basis. The insurance provides cover for losses of a third party that occur during the policy period. 

Secondly, the policy may be on an ‘act-committed’ basis. This requires that the act that gives rise to the loss is committed during the policy period.

Thirdly, the policy may provide cover on a ‘discovery basis’. In these cases, the insured event is the first verifiable determination of an environmental disturbance that may result in a liability of the insured for damages. 

Also, the policy may provide cover on a ‘claims made’ basis for claims against the insured that are made during the policy period.

As a general rule, each party to court proceedings in Austria has to bear its pre-trial costs and the costs incurred during the court proceedings. However, following the applicable "loser-pays-rule" the losing party, whether wholly or partly unsuccessful, must compensate the other party for all recoverable costs necessarily incurred by this other party in taking the appropriate legal actions; in essence, this means court, experts’ and lawyers’ fees and expenses. An insurer that has successfully defended a claim in court proceedings is, therefore, allowed to recover its defence costs from the claimant.

The judge in the first instance determines the compensation amount based on the amount claimed by the winning party and issues a cost decision in writing. The applicable rules in this respect are very complex. The decision on costs can be appealed. Payment becomes due once the decision on costs has become final and binding.

Austrian law does not contain any definition of an uninsurable interest. However, as a basic rule, any insurance contract providing for coverage which is deemed to be in violation of bonos mores, or which would cover administrative or penal fines, is void.

In 2004, the FMA prohibited the sale of a specific service by a Liechtenstein based company in Austria. The company had offered, under certain circumstances, to at least partly reimburse its customers for paid radar and parking penalties up to a certain amount. The FMA qualified this as an insurance business and held that such “insurance” was contrary to public policy as it would undermine the purpose of the penalty.