Federal Court of Justice ruling


Before the terrorist attack on the World Trade Centre in New York on September 11 2001, the risk of a terrorist attack was regarded as negligible and was usually covered by fire insurance without any extra premium. After the attack, most insurance companies changed their conditions so that damage to buildings resulting from acts of terrorism with an insured value of more than €25 million was no longer covered. Therefore, many building owners soughted to take out separate terrorism insurance and to allocate the resulting costs to the tenants.

A Higher Regional Court of Stuttgart ruling of February 15 2007 (Decision 13 U 145/06) was favourable to landlords in this regard. The court held that the costs of terrorism insurance could be allocated to tenants if the rental contract defined the costs of property insurance as 'allocable operating costs' – irrespective of whether the building was particularly at risk. The court reasoned that since it cannot be predicted where a terrorist attack will take place, all buildings are at risk. As such, the court held that terrorism insurance was necessary and reasonable for all buildings.

On the basis of this ruling, it was possible to advise landlords that the costs of terrorism insurance could be allocated to tenants, provided that the costs of property insurance were agreed to be allocable auxiliary costs in the rental contract. This also applied to new insurance policies which arose during the term of the rental contract where the previous insurance no longer covered the risk of terror.

Federal Court of Justice ruling

A Federal Court of Justice ruling of October 13 2010 (XII ZR 129/09) has now called this position into question. The court ruled that the costs of terrorism insurance can be allocated to the tenants only under very specific circumstances.

The court stated that the costs of terrorism insurance can fundamentally be allocated to tenants as auxiliary costs because it qualifies as building insurance and therefore falls into the category of property insurance. However, landlords must always take the principle of economy into account when allocating auxiliary costs. This refers to the landlord's auxiliary contractual obligation to act in good faith and to allocate to the tenant only those auxiliary costs which are necessary and reasonable. For rented residential premises, this obligation is defined in Section 556(3) of the Civil Code. For rented business premises, it is stipulated in Section 242 of the Civil Code. The definitive criterion is the perspective of a sensible landlord who ensures a justifiable cost/benefit ratio in the course of proper management. However, the landlord is granted a certain degree of scope for decision making. For example, he or she is not always obliged to select the cheapest solution, but is entitled to take into account other criteria which are relevant to proper property management, such as the reliability of the contracting party.

On this basis, a landlord can allocate the costs of terrorism insurance to tenants only if the costs are necessary and reasonable. The Federal Court of Justice therefore demands that, for each insured building, a check be made to ascertain whether insurance against acts of terrorism is necessary and whether the selected insurance policy is reasonable if there are specific circumstances which justify the risk of damage to the building as a result of a terrorist attack.

The Federal Court of Justice also explained which buildings are deemed to be subject to "a justified risk of terrorist attacks". According to the court, acts of terrorism are:

"any acts of persons or groups of persons which are committed to achieve political, religious, ethnic, ideological or similar goals which are likely to create fear in the public or any section of the public and thus to influence any government or government institution".

Terrorist attacks are designed to weaken major state structures by creating fear in the population. Therefore, according to the Federal Court of Justice, buildings which are particularly at risk are:

  • buildings with a symbolic character (eg, the Eiffel Tower);
  • buildings in which the power of the state is exercised (eg, military facilities, government and parliamentary buildings);
  • buildings in which a large number of people congregate, especially in big cities or conurbations (stations, airports, tourist attractions, sports arenas, office or shopping centres); and
  • buildings which are in the immediate vicinity of such buildings.

Buildings which meet these conditions can therefore fundamentally be insured against the risk of a terrorist attack and the costs can be allocated to the tenants. However, the landlord must also take the obligation of economy into account when selecting the specific insurance policy and is not entitled to select an excessively expensive policy. However, as outlined above, he or she retains a degree of discretion for this decision.


The costs of terrorism insurance can be allocated to tenants if:

  • the rental contract includes the appropriate provisions regarding auxiliary costs;
  • there is a justified risk of terrorist attack for the building; and
  • the cost/benefit ratio for the specific policy is reasonable.

For further information on this topic please contact Kerstin Thiel at SIBETH Partnerschaft by telephone (+49 89 38 80 80), fax (+49 89 38 80 81 01) or email ([email protected]).