Preliminary and jurisdictional considerations in insurance litigation


In what fora are insurance disputes litigated?


Insurance disputes are heard in the courts competent for civil law matters. These are, in descending order of seniority, the Federal Court of Justice in Karlsruhe, 24 higher regional courts, 116 regional courts and 661 local courts. Apart from the local courts, all courts usually have specialised chambers or senates for insurance matters. Both the local courts and the regional courts are courts of first instance. In insurance matters, the court of first instance will be a regional court if the amount in dispute exceeds €5,000.

The local court in the district of the policyholder's (habitual) place of residence at the time of filing the action generally has jurisdiction for all claims arising out of or in connection with the insurance contract and exclusive jurisdiction for actions brought against the policyholder, under section 215 of the Insurance Contract Act (VVG). International jurisdiction is generally inferred according to the principle of double functionality. Section 215 of the VVG, however, only applies if jurisdiction is not determined by superior law, such as EU law. For large risks, following section 210 of the VVG, the parties to the insurance contract may agree on the place of jurisdiction, if the contracting parties are merchants (section 38 of the German Code of Civil Procedure).

If a defendant has his or her (habitual) place of residence within the European Union, 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 (Brussels Ia) (or the Lugano Convention for Switzerland, Norway and Iceland) applies with special rules on jurisdiction in insurance matters. For EU cases, jurisdiction is primarily determined based on either an implied (article 26 of Brussels Ia) or explicit (article 25 of Brussels Ia) agreement on jurisdiction. Otherwise, article 10 et seq of Brussels Ia determine international jurisdiction for insurance matters.


Insurance contracts rarely contain arbitration clauses, and arbitration proceedings are quite common in reinsurance disputes. However, insurance disputes are, in principle, fully arbitrable in Germany. In business insurance, while still the exception, arbitration agreements are on the rise, in particular for technical or international risks, such as aviation or maritime insurance, but also for other special risks, such as W&I insurance. By contrast, cedants and reinsurers typically prefer settling disputes by way of arbitration as a private, confidential forum and by self-chosen neutrals with the necessary experience and know-how in the industry. In line with worldwide practice, German reinsurance contracts usually contain an arbitration agreement. While most agreements provide for ad hoc arbitration, parties are increasingly using institutional rules. Germany has adopted the UNCITRAL Model Law on International Commercial Arbitration and provides for a modern arbitration regime with detailed and well-structured provisions designed to protect party autonomy and to afford effective arbitral justice. German courts and German procedural law in general are perceived to be very arbitration-friendly. Germany, therefore, is a significant venue for international arbitration proceedings, being recognised for the efficient and cost-sensitive handling of disputes. Germany is a signatory to the New York Convention, and recognition and enforcement of awards follows the New York Convention’s rules. The higher regional court at the seat of the arbitration has competence to set aside an arbitral award only under very narrow prerequisites.

Insurance Ombudsman Association

Consumers can bring their insurance claim in front of the Insurance Ombudsman Association, a recognised consumer conciliation body for insurance matters handling and deciding around 20,000 claims per year. The proceedings are free of charge for consumers and the decision is binding on the insurers for matters up to an amount in dispute of €10,000.

Causes of action

When do insurance-related causes of action accrue?

In insurance disputes, courts are dealing with a wide range of issues. The scope of the insurance contract, breaches of obligation and exclusions (especially the exclusions for intentional acts) are among the most common issues in insurance litigation. The insurer's main obligation is to grant coverage within the scope of the insurance contract. A typical issue therefore is a coverage denial – whether in full or with respect to certain issues. The grounds for coverage denial vary from case to case and can generally be of a legal, contractual or factual nature. For example, in contractual terms, breaches of an obligation by the insured or increased risks are grounds for coverage denial. From a factual point of view, the loss that has occurred may not be insured, exclusions may exempt the insurer from payment or the place of loss may not be insured, among others. If the insurer fails to perform, the insured can claim coverage. The insured may also hold the insurer liable for additional damages. However, German law neither acknowledges punitive damages nor provides for a cause of action for bad faith.

A breach of the policyholder's obligations under the insurance contract, however, generally does not give rise to a separate claim by the insurer against the policyholder but rather releases the insurer from the duty to perform. This may, in turn, lead to a claim for coverage brought by the policyholder.

Preliminary considerations

What preliminary procedural and strategic considerations should be evaluated in insurance litigation?

Generally, the preliminary and procedural strategic considerations regarding insurance litigation are the same as those relating to other commercial litigation matters. However, these general considerations naturally have to be tailored to the specifics of insurance matters. The following aspects, among others, can play a role in the preliminary considerations regarding insurance disputes: forum (see ‘Fora’); parties (insurance programmes with multiple insurers and layers, involvement of intermediaries, multiple insureds or beneficiaries); merits (applicable law, the basis of the claim, specific contractual framework, facts); enforcement; and settlement options.

Time and costs are also important factors. The duration of proceedings depends on the complexity of the individual case. In complex insurance and reinsurance matters, in particular when extensive taking of evidence is involved, the duration of proceedings may, and often will, be above average.

Litigation costs in Germany consist of court fees and expenses and of parties’ costs, especially lawyers’ fees. The court fees must be paid by the plaintiff in advance. Costs are, in general, recoverable in the event of success and the losing party must bear the costs of the litigation (the ‘loser pays’ rule). In cases with partial success, costs are either proportionally allocated by reference to the degree of success or court costs are split up and each party bears its own out-of-court costs.

Both court and lawyers’ fees are, in general, determined by statutory rates and calculated according to the amount in dispute and the procedural stages covered. If a party agrees to pay its lawyer a higher rate, for example, based on hourly rates, the party generally has to bear the extra fees regardless of the court’s decision, unless the fees in excess of the statutory rates constitute recoverable damages. Contingency fees are only permissible under narrow circumstances. Otherwise, court and lawyers' fees are calculated based on the amount in dispute. The maximum amount in dispute for purposes of calculating litigation costs is €30 million, leading to maximum court costs of roughly €330,000 and maximum statutory lawyers’ fees of roughly €275,000 (plus VAT) for first instance proceedings. In case of a settlement in first instance, and again based on an amount in dispute of €30 million, court costs will be reduced to approximately €110,000, whereas lawyers’ fees will be increased to approximately €310,000.

In addition to the above, the statute of limitations also plays an important role. Claims arising from an insurance contract are subject to a limitation period of three years. The period is calculated in accordance with the general provisions of the German Civil Code. If a claim from the insurance contract has been filed with the insurer, the limitation period is suspended until the time at which the insurer's decision reaches the claimant in text form.


What remedies or damages may apply?

Insurers’ remedies

The VVG contains a distinctive system of pre-contractual, contractual and special obligations, for example, in the instance of an increase of the risk insured and following an insured event. There is also a distinctive system of remedies available to the insurer in the event the insured breaches its obligations, depending on the policyholder's degree of fault.

In the event of pre-contractual non-disclosure or misrepresentation, as a general rule, the insurer may rescind the insurance contract. Except for intentional or gross negligent conduct, the insurer will, however, only be entitled to terminate the contract subject to a notice period of one month. Rescission and termination are excluded if the insurer would have concluded the contract, although with different conditions, had the insurer been properly informed of the non-disclosed facts. Upon the request of the insurer, these other conditions are deemed to have become part of the contract instead. Only if the misrepresentation or non-disclosure refers to circumstances causing the occurrence of the insured event or the extent of the insurer’s liability, will the insurer be relieved of the obligation to provide coverage in the event of rescission after an insured event (except for fraudulent misrepresentation or non-disclosure). In the event of fraudulent misrepresentation or non-disclosure, the insurer will also be entitled to avoid the insurance contract with retroactive effect within one year upon discovering the fraudulent misrepresentation or non-disclosure.

In the event of risk increase after the conclusion of the contract, the insurer is entitled to rescind the contract with immediate effect if the insured acted intentionally or with gross negligence. In the event of simple negligence of the insured, the insurer may rescind the contract within one month. The insurer may alternatively increase the premium or exclude the increased risk. A premium increase of 10 per cent (or above) or exclusion of the increased risk in turn entitles the insured to rescind the contract. The right to rescission, increase of the premium or exclusion of the increased risk ceases to exist if it is not exercised within one month of gaining knowledge of the risk increase or if the status that existed before the risk increase is restored. If the insured event occurs after the risk increase, the insurer is exempt from payment if the insured acted intentionally. In the event of gross negligence, the insurer is entitled to reduce the payment based on the degree of negligence. The insurer will not be exempt from payment if the risk increase was not causal for the occurrence of the insured event or the extent of the insurer's payment obligation, or the insurer refrained from rescinding the contract and the insured event occurred after the time period for rescission had passed.

Policyholders’ remedies

The insurer is obliged to provide coverage according to the insurance contract terms. In the event of non-performance, the policyholder may enforce the insurance claim, if necessary in court. According to section 14 of the VVG, the insurer's payment is due when the necessary determination regarding the insured event and scope of the insurance claim is completed. However, if this determination – without the policyholder's fault – is not completed within one month of the notification of the insured event, the policyholder is entitled to claim advance payments in the amount of the expected coverage.

Damages for late payments or any other breach connected to the insurance contract (eg, improperly delaying settlement) may be claimed according to general contract law.

Following a coverage denial, the policyholder will be freed of any obligations under the policy to cooperate with the insurer and may also claim for additional damages. The concept of bad faith litigation is unknown in Germany.

Under what circumstances can extracontractual or punitive damages be awarded?

Punitive damages do not exist under German law. The Federal Supreme Court has refused the recognition of US judgments on punitive damages for a violation of German public policy. Extracontractual damages are the exception in German insurance litigation but are, in theory, a possible remedy.

Law stated date

Correct on

Give the date on which the information above is accurate.

3 January 2020