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Stand:updated on 22.07.2022 | Topic Consumer protection Third-party liability insurance

Third-party private liability insurance (Privathaftpflichtversicherung) provides protection against claims for damages that you, as a private individual, may be exposed to as a result of everyday risks. Although third-party liability insurance is not mandatory, it is advisable for everyone to have it. Even a minor accident can result in considerable damage for which the person responsible may be fully liable. This means that, theoretically, they could be required to use their entire assets to pay for the damage.

What is the purpose of third-party private liability insurance?

Third-party private liability insurance provides protection against claims for damages that you, as a private individual, may be exposed to as a result of everyday risks. Anyone could cause damage in their day-to-day life. A typical example might be your son accidentally breaking the neighbour’s window with his football. And as a pedestrian or cyclist, you could potentially cause a road traffic accident resulting in millions of euros’ worth of damage. If you have third-party private liability insurance, your insurer covers the costs up to the contractually agreed sum insured. For claims related to accidents caused by a motorist, you will need motor vehicle third-party insurance.

Not all damage is covered by third-party liability insurance, which only applies to damage for which you are held liable due to statutory liability provisions.

Third-party liability insurance not only provides protection against valid claims. It also serves as a deterrent against unfounded claims which are asserted against you, as the policyholder, or against your insured relatives. Third-party liability insurance helps you to defend yourself against such claims.

Who needs third-party private liability insurance?

Although third-party private liability insurance is not mandatory – in contrast to motor vehicle third-party insurance – it is advisable for everyone to have it. Even a minor accident can result in considerable damage for which the person responsible may be fully liable. This means that, theoretically, they could be required to use their entire assets to pay for the damage.

What problems might arise?

  • Intent: If you or your insured relatives cause damage intentionally, you will not be able to claim on your third-party liability insurance. In the case of gross negligence, the insurance company can limit the compensation they provide. How much is deducted from the insurance payouts depends on the degree of fault.
  • Children: Up until their seventh birthday, children are not liable for any damage they cause. For damage in relation to road traffic accidents, the age limit is ten. In these cases, third-party liability insurance will not pay. However, as a parent, you could be held liable if you culpably violate your legal obligation to supervise the child. In this case, your third-party liability insurance would cover the damage caused by the child.
    There are also insurers that provide cover for children below the age of liability. In such cases, the aggrieved parties are often relatives, neighbours or friends. In order to avoid any conflicts, it is advisable to take out liability insurance that also provides cover for children below the age of liability. With these policies your insurance will, if you wish, also pay in cases where you are not liable and therefore not obliged to pay damages.
  • Hobbies: You should ensure that any risks associated with your hobbies are included in your insurance coverage or take out extra insurance to cover them. This does not only apply to particularly risky hobbies, such as riding an e-bike, or flying model aeroplanes or drones, but also to activities such as voluntary work.
  • Professional activities: Third-party private liability insurance does not cover damage caused in the course of professional activities or when performing a trade. For this you would have to take out professional indemnity insurance.
  • Actual cash value: Insurance only reimburses the actual cash value. Property loses value over time due to wear and tear and increasing age. This is taken into consideration in the compensation paid by the insurer.
  • Relatives: Third-party liability insurance usually also includes the children, spouse or partner, or other relatives belonging to the same household as the policyholder. However, it does not provide coverage for damage that relatives living in the same household cause to one another. In the event of divorce or separation, the party that is not the policyholder should make sure they take out their own insurance coverage in good time. The same applies when a family member moves out.
  • Sum insured: Pay attention to the amount of insurance coverage. If the agreed sum is too low, for example in the event that someone is so badly injured that they are unable to work, the damages can quickly exceed the insured amount. In such cases, as the policyholder or insured relative, you will be liable, with the entirety of your private assets, to cover any damages that exceed the sum insured.

What do I need to bear in mind in the event of a claim?

  • If damage has occurred, referred to as the insured event, you must inform your insurer of this within a certain time limit. The time limit is stipulated in the insurance terms and conditions.
  • As a general rule, you should not acknowledge the claim the aggrieved party makes against you. Talk to your insurer first.
  • If a court, public prosecutor’s office or another public authority initiates proceedings against you in connection with damage you have caused, or if you receive a payment order, you must also inform your insurer of this within a set time limit. This time limit is also stipulated in the insurance terms and conditions.
  • If an action is brought against the policyholder due to the damage caused and this results in a court case, the insurer assumes responsibility for conducting litigation and also bears the associated costs.

Where can I take out third-party liability insurance?

You can take out third-party liability insurance with an insurance company directly (for example in a branch or online). Alternatively, you can take out a policy via an insurance broker or insurance agent.

How much does third-party liability insurance cost?

The premiums for third-party liability insurance depend on various factors. These factors include the persons insured and the level of coverage. It can help to compare prices, but you should always consider the insurance coverage offered!

Agreeing to an insurance excess can reduce your premiums.

The costs of premiums for third-party liability insurance may also be tax-deductible.

What information is the insurer required to provide?

Your insurer must provide you with the following information:

  • Insurance product information document: this contains the most important information about your policy in a compact format and includes, for example, details of your insurance protection, premiums and termination periods.
  • Customer information: you must receive information about the insurer, the services provided, the contract and available legal protections.
  • General insurance policy conditions: general conditions for third-party liability insurance (Allgemeine Versicherungsbedingungen für die Haftpflichtversicherung – AHB) alongside the special conditions and descriptions of risk for third-party private liability insurance (Besondere Bedingungen und Risikobeschreibungen für die Privathaftpflichtversicherung).

What do I need to bear in mind when terminating or changing my insurance?

As the policyholder, you can terminate your policy, normally with a notice period of three months before the end of the insurance period, without having to specify your reasons. The termination period and policy duration can be found in the insurance terms and conditions.

If an insured event occurs, i.e. in the event of damage or loss, both you and your insurer have the right to extraordinary termination for a limited period of time. This period is specified in the insurance terms and conditions.

Because of the importance of third-party liability insurance, if you want to switch insurer you should always make sure that you have taken out a new policy before the old one expires so as to avoid gaps in your insurance cover.

How are third-party liability insurers supervised?

BaFin supervises German insurance companies and monitors all of their business operations. BaFin’s responsibilities include ensuring that the legal and financial interests of all insured persons are adequately protected. In order to protect the interests of all insured persons, BaFin accepts and processes complaints about insurance undertakings. However, BaFin cannot enforce your rights as an individual. That is the responsibility of the courts.

The quality and contents of insurance policies are not subject to review by BaFin, and BaFin also does not approve insurance terms and conditions.

As a matter of principle, insurers have contractual freedom in the area of third-party private liability insurance. Insurance companies can decide themselves whether and under what conditions they accept or reject applications for insurance, and they can also decide on the scope of cover they want to offer.

If BaFin determines that insurance terms and conditions are in breach of the law (in particular consumer protection law) or (high) court decisions, it can take measures to remedy or prevent such shortcomings.

Where can I find more detailed information?

You can get further information:

  • from insurance companies, who can provide information about the specific contractual terms and the scope of insurance cover they offer;
  • from local consumer advice centres and other consumer protection organisations – contact details can be found on the website of the consumer advice centre (Verbraucherzentrale);
  • on the website of the German Insurance Association (Gesamtverband der Deutschen Versicherungswirtschaft e. V.);
  • and in specialist media.

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