What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?
Like all contracts, insurance contracts are concluded in accordance with the general provisions of offer and acceptance. However, the provisions on information obligations under Section 7 of the Insurance Contract Act and a modification of the principle of related and corresponding declarations of intent set out in Section 5 of the Insurance Contract Act shape the course of events at the end of which the contract is concluded. Section 7 of the Insurance Contract Act imposes extensive obligations on insurers to provide customers with information in writing prior to the conclusion of the insurance contract. Whether an insurance contract has been concluded does not depend on the fact that the insurer has correctly fulfilled its information obligations, but rather exclusively on the fact that two corresponding declarations of intent containing a consensus on the contract-typical obligations have been made and received. That said, as long as the required information has not been provided by the insurer, the revocation period does not start to run, so the contract is only provisionally valid.
Insurance contracts will be concluded under one of the following models:
- the application model (which dominates in practice) – under this model, the policyholder applies for the conclusion of the insurance contract, which the insurer generally accepts by sending in return the policy and an accompanying letter; or
- the invitatio model – under this model, the (future) policyholder asks the insurer to submit to it a specific offer which the insurer then prepares on the basis of the risk and contract-relevant information provided with the invitatio ad offerendum and forwards to the policyholder in the form of a policy with the necessary consumer information.
Are (re)insurance contracts subject to any mandatory/prohibited provisions?
The Insurance Contract Act provides for a number of so-called ‘semi-mandatory provisions’ (ie, provisions which can neither be contractually precluded nor modified to the insured’s disadvantage). However, Section 210 of the Insurance Contract Act provides that such restriction of the freedom of contract will not apply to so-called ‘large’ risks or open policies. In line with EU law, such large risks include certain transport, liability and credit insurances, as well as certain property, liability and other indemnity insurances if the policyholder exceeds at least two of the following characteristics:
- €6.2 million total balance sheet;
- €2.8 million net turnover; and
- an average of 250 employees per fiscal year.
If the policyholder belongs to a group which must prepare a consolidated financial statement, the size of the enterprise is determined according to the figures in the consolidated financial statement.Implied terms
Can any terms be implied into (re)insurance contracts (eg, a duty of good faith)?
The starting point for the interpretation of insurance contracts is the wording of the clause. According to relevant case law and legal literature, insurance conditions must be interpreted objectively (ie, in a way that an average policyholder can understand them if they are comprehensively assessed and attentively reviewed and the recognisable context of meaning is taken into account). The interpretation therefore depends on the capabilities of an insured person with no special knowledge of insurance law and also on the specific interests. With regard to business insurance, the policyholder’s customs and trade practices are generally taken into account if they actually apply to the categories of persons involved in the contract and if the relevant factual evidence has been introduced into the process. Risk exclusion clauses must be interpreted narrowly. In the case of such clauses, the interest of the policyholder is usually to ensure that the insurance cover is not reduced further than the discernible purpose of the clause requires. According to settled case law, the average policyholder need not anticipate gaps in insurance cover without a clause making this sufficiently clear.
The concepts of conditions precedent to the insurer’s liability or warranties as reflected in UK law do not exist under German law.Standard/common terms
What standard or common contractual terms are in use?
German (re)insurers usually draft their own standard terms and conditions for the respective business lines. The Association of the German Insurance Industry has issued model standard terms and conditions for various business lines.‘Smart’ contracts
What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?
The government published an AI strategy in November 2018. By 2025, €3 billion will be made available and 100 new university chairs dealing with AI topics will be created. It is foreseeable that AI will play an important role in three key areas:
- the automation of insurance processes;
- risk analysis; and
- efficient customer contact.
The Federal Financial Supervisory Authority (BaFin) has questioned whether all technical possibilities are compatible with the existing supervisory and data protection regulations. In an exploratory project, insurers under the umbrella of the Association of the German Insurance Industry analysed suitable areas of use for blockchain. However, it is still uncertain how possible blockchain application cases can be reconciled with the applicable legal framework. Under the EU General Data Protection Regulation (2016/679) (GDPR), the right to be forgotten stands in the way of the fundamental technical construction of blockchain. Further, there must be no legal uncertainty regarding the recognition of transactions and identities for blockchain solutions in the insurance sector. Future binding standards for relevant loss event data will most likely be defined in order to create a suitable legal and regulatory framework.Breach
What rules and procedures govern breach of contract (for both (re)insurer and insured)?
The German Insurance Act contains a distinctive system of pre-contractual, contractual and various special obligations connected to – for example – risk increase or during an insured event. Connected to these obligations is a similarly distinctive system of remedies available to the insurer, depending on the policyholder's degree of fault. For any remedies to apply, the insurer must have warned the policyholder in writing in separate correspondence of the consequences of any breach of the disclosure obligations.
The insurer's main obligation is to grant coverage within the scope of the insurance contract. If the insurer fails to perform, the insured may claim coverage – ultimately in court.