Under German insurance law there can be contractually agreed duties for the insured but these are not legally enforceable. However, the insured should endeavour to fulﬁl these duties, otherwise, in speciﬁc circumstances, the insurer may be entitled to terminate cover under the insurance contract.
Under the German Insurance Contract Act (VVG), there is an obligation on the insured to provide information when seeking cover. The insured must inform the insurer of all known circumstances which are relevant for the insurer’s decision to write the risk, and which the insurer has expressly asked for in ‘textform’ (as deﬁned under German law to mean in writing, via fax or email). The insured is not obliged to disclose any circumstances or risks that the insurer did not ask for in writing.
Case law precludes brokers from using their own forms when requesting information from a potential insured. In cases where a broker is involved in the process of a potential insured seeking cover and uses its own form, it is necessary for the insurer to at least adopt the questions as ‘its own’ and that this is clear to the insured. It is advisable for insurers to prepare questions on their own and provide brokers with their question forms.
If the insured fails to inform the insurer of all known circumstances which the insurer requested in writing, the insurer will be entitled to avoid the contract only if the insured has acted with gross negligence. In the event of an innocent breach or simple negligence on the part of the insured, the insurer will only be entitled to cancel the contract but will still be liable for claims arising out of insured events that have already occurred and have been notiﬁed.
Unless there has been deliberate misrepresentation and non-disclosure, the insurer cannot avoid or cancel the contract if, being aware of the actual circumstances, it would have written the risk albeit on a different basis. In this situation, upon the insurer’s request, the cover can be amended retrospectively.
However, if the premium increases by more than 10%, the insured may cancel the contract.
In each case the insurer must inform the insured in writing of the possible consequences of breach of the duty to notify. Further, if the insurer was independently aware of the misrepresentation or non-disclosure, it cannot rely on the breach.
Under the German Insurance Contract Act, if there is an increase of risk, and the insured becomes aware of this, the insured is obliged to notify the insurer without undue delay.
If the insured does not comply with this obligation, the insurer may cancel the contract, demand a higher premium, or exclude the increased risk from the cover. These rights are available to the insurer for one month from the time that the insurer becomes aware of the increase in risk, and will cease if the risk reverts to its original level.
If a claim is made after an increase in risk, and the insured deliberately caused the increase in risk, the insurer is released from its obligation to provide cover. If there has been gross negligence on the part of the insured, the extent of the insurer’s release from their obligation to provide cover will depend on the circumstances of the individual case. The insurer is entitled to reduce cover in proportion to the extent of the insured’s negligence. In both cases, the increase in risk must have caused the loss or the extent of the loss. The insurer remains obliged to pay if a claim is made and the insurer has not cancelled the contract within one month.