The German Insurance Contract Act ("VVG") was revised with effect from 1 January 2008. Section 28 of the revised Insurance Contract Act stipulates that the insurer is released from its obligation to perform if the policyholder wilfully (vorsätzlich) violates his duty (Obliegenhei) to the insurer. It is not permitted to deviate from section 28 if this would result in a disadvantage for the policyholder. In the case in question, however, a clause in the parties' terms of insurance - dating back to 1988 - stated that the insurer would be released from its obligation to perform if the policyholder violates a duty through gross negligence (grobe Fahrlässigkeit). The insurer failed to change the clause in question within the one-year-period allowed by section 1 subsection 3 of the introductory law of the Insurance Contract Act as revised effective 1 January 2008.

As expected, the Court of Appeals of Cologne ruled that the clause in question violated section 28 of the revised Insurance Contract Act and was therefore invalid. Any validitypreserving reduction of the clause is prohibited by section 306 of the German Civil Code. The invalid clause is therefore replaced by statutory provisions, i.e. section 28 of the revised Insurance Contract Act. However, the court pointed out that under the provisions of the revised Insurance Contract Act a release of obligations in the event that the damage is caused by gross negligence is still possible.

Court of Appeals of Cologne,

17 August 2010