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Questions & answers on concluding insurance contracts

Can insurance contracts also be concluded by telephone?

Insurance contracts concluded over the phone are valid. It may sometimes be the case, though, that the statutory information obligations have not been properly fulfilled when a contract is concluded over the phone. In this case, the policyholder may be entitled to damages against the insurer.

In accordance with section 7 of the German Insurance Contract Act (Versicherungsvertragsgesetz – VVG), an insurer is obliged to notify the policyholder in text form and in good time, before the policyholder submits his or her policy declaration, of the contractual provisions, including the general insurance terms and conditions, and the information stipulated in the German Regulation on Information Obligations for Insurance Contracts (VVG-Informationspflichtenverordnung – VVG-InfoV). If the contract was entered into by telephone upon request of the policyholder, the aforementioned information must be provided in any case without delay after conclusion of the contract.

Can insurance contracts be concluded by minors?

Contracts with minors are valid if these are concluded with the consent of their legal representatives – normally the parents – and the contract in question provides that the contractual relationship including payment of premiums is to continue no longer than one year after the age of majority is reached. In the event that a longer period beyond the age of 19 should be provided, the legal representatives of the minor must obtain the approval of the family court under guardianship law.

The validity of an insurance contract concluded without the required approvals is deemed suspended, and must be terminated retroactively from the beginning ("ab initio") at the policyholder’s request. The contract becomes valid only if the policyholder expressly consents to the contract after reaching the age of majority.

The question of whether the further payment of the premiums by the policyholder after reaching the age of majority is to be regarded as an (implied) consent has to be decided on a case-by-case basis and cannot be answered generally. If an insured event occurs during the contract’s suspended validity, the insurer has to pay since it is within the insurer’s power to remove the legal state of suspension.

Subject to the provisions of section 110 of the BGB (pocket money paragraph), an insurance contract entered into by a minor with limited legal capacity (from the age of seven to seventeen) is deemed effective if the payment of premiums is effected with funds that are at the free disposal of the minor. This is a question of the individual case, and should be clarified with the insurer when the insurance contract is concluded.

What consumer information is an insurer required to provide to the policyholder upon conclusion of an insurance contract and what are the consequences of failure to do so?

In accordance with section 7 of the German Insurance Contract Act (VersicherungsvertragsgesetzVVG), an insurer is obliged to notify the policyholder in text form and in good time, before the policyholder submits his or her policy declaration, of the contractual provisions, including the general insurance terms and conditions, and the information stipulated in the German Regulation on Information Obligations for Insurance Contracts (VVG-InformationspflichtenverordnungVVG-InfoV). The purpose of this provision is to ensure that policyholders, already prior to concluding the contract, are given the opportunity to inform themselves of the rights and obligations provided for in the insurance contract. The VVG-InfoV starts by establishing the general information obligations to be fulfilled in all insurance classes (life, health and property/casualty) (see section 1 of the VVG-InfoV). In addition to that there are also special information obligations that only have to be observed for life insurance, occupational disability insurance and accident insurance with premium refund (see section 2 of the VVG-InfoV) as well as health insurance (see section 3 of the VVG-InfoV). If the policyholder is a consumer within the meaning of section 13 of the German Civil Code (Bürgerliches Gesetzbuch – BGB), the insurer is also obliged to provide the policyholder with a product information sheet before the contract is concluded. This must contain such information as is of particular relevance for the conclusion and performance of the contract (see section 4 of the VVG-InfoV).

If an insurer breaches its duties as set out in section 7 of the VVG and/or in the provisions of the VVG-InfoV, this firstly results in the revocation period defined in section 8 of the VVG commencing only after these obligations have been fulfilled in full; and secondly, the insurer may also be liable to claims for damages. These can be directed especially towards cancellation of the contract.

In the case of insurance-based investment products (endowment life insurance policies), the insurer is subject to more extensive information obligations vis-à-vis the policyholder in accordance with section 7b of the VVG (in particular with regard to the suitability and risks related to the proposed investment strategies) and special examination obligations in accordance with section 7c of the VVG (in particular with regard to the appropriateness of the insurance product).

What advisory duties do insurers have towards policyholders when entering into a contract and during its term? Is it always necessary to keep a record of the advice provided? And if so, in what form?

The advisory duties of insurers are set out in section 6 of the German Insurance Contract Act (VersicherungsvertragsgesetzVVG). This requirement came into force with the reform of the VVG on 1 January 2008. Under German law, insurers are obliged to provide advice as needed to policyholders before entering into a contract. They are also obliged to provide a record of the advice that has been given and the reasons for giving such advice on paper, via a website or a different durable data medium, in accordance with section 6a of the VVG. This is to ensure, in the interests of policyholders, that they receive insurance coverage that meets their needs and wants in the best possible way.

Ideally, insurance advice should comprise four stages. Firstly, insurers must ask policyholders about their needs, wants and personal circumstances. This forms the basis for the advice to be provided in the second stage regarding the insurance contract to be signed. In the third stage, policyholders must be informed about the reasons behind the advice provided. This is to ensure that policyholders are given the chance to check again whether the insurance product they have been offered meets their personal needs. It should be noted that the extent and scope of these first three stages do not always have to be the same. Rather, the personal circumstances of the policyholder and the specific type of insurance coverage they are seeking are key factors here. For example, any prior knowledge that the policyholder may have or the simplicity of the desired insurance product may mean that the advice provided does not have to be as thorough or extensive as in other cases. By contrast, insurers may be required to provide more extensive advice, even to experienced policyholders, for example in cases where an insurance product is not very transparent or may even involve losses that are not insured. In the final stage, the entire customer meeting must be documented and kept as a record of advice. This record is to be made available to the policyholder. There are differences in opinion as to whether the record of advice should be signed or not. For evidential reasons, policyholders should insist on having the record of advice signed by both parties (the insurer and the policyholder). If the insurer culpably violates its advisory duties, they are obliged to provide compensation to the policyholder in accordance with section 6 (5) of the VVG.

There are exceptions to the advisory duties under section 6 (6) of the VVG in the case of jumbo risks within the meaning of section 210 (2) of the VVG and in the case of insurance contracts entered into via an insurance broker. Under certain conditions, policyholders may choose to refrain from receiving advice and documentation by submitting a separate written statement (see section 6 (3) sentence 1 of the VVG). In the case of distance contracts within the meaning of section 312c of the German Civil Code (Bürgerliches GesetzbuchBGB) (contracts that exclusively use means of communication such as fax, SMS or via the Internet), the policyholder may refrain from using the text form (see section 6 (3) sentence 2 of the VVG).

For the duration of the insurance relationship, the insurer also has an obligation to provide advice if it becomes apparent that there is a need to seek information from or advise the policyholder (see section 6 (4) of the VVG). In particular, the insurer may have an obligation to provide advice in cases where a policyholder notifies the insurer that an insured event has occurred.

More and more insurance companies provide their general terms and conditions in electronic form (CD, USB stick). Is this legal or do these documents have to be provided in printed form?

Section 7 (1) sentence 1 of the German Insurance Contract Act (VersicherungsvertragsgesetzVVG) provides that an insurer is obliged to notify the policyholder in text form, in good time before the policyholder submits his or her policy declaration, of the contractual provisions, including the general insurance terms and conditions, and the information stipulated in the Regulation on Information Obligations concerning Insurance Contracts (VVG-Informationspflichtenverordnung – VVGInfoV).

The concept of text form is defined in section 126b of the BGB. According to this, a declaration must be given either in a document or in another manner suitable for permanent reproduction in characters. On this premise, the policyholder as a general rule is to be provided with paper documents. However, CD-ROMS, USB sticks, faxes, e-mails or other media satisfy these requirements so far as the insurer has ascertained that the policyholder can read and store the information permanently or that the recipient can make a printout.

Internet pages as a general rule do not satisfy the text form requirement because it is not a permanent medium.

It is a matter of dispute whether a link to contract information on a website of an insurance company satisfies the requirements of text form. In the vast majority of cases the answer to this is yes if the information can be downloaded by the policyholder and permanently stored. However, the insurer must make sure that the policyholder has the hardware equipment necessary for this.

Please note:
Section 7 of the VVG was newly introduced by the reform of the VVG in 2008. All the above information is based on views expressed in the literature. So far, Germany’s highest court instances have not made any rulings on this question.