BaFin

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 notification duties set out in section 7 of the German Insurance Contract Act (VersicherungsvertragsgesetzVVG) have not been duly fulfilled with this form of contractual commitment. In this case, the policyholder may be entitled to damages against the insurer.

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 (cf. section 1643 (1) of the German Civil Code (Bürgerliches GesetzbuchBGB) in conjunction with section 1822 no. 5 of the BGB).

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?

Pursuant to section 7 of the German Insurance Contract Act (VersicherungsvertragsgesetzVVG), an insurer is required to notify the policyholder in writing and in good time before the policyholder submits his declaration of intent, of the contractual provisions including the general terms and conditions of insurance as well as the information prescribed in the Regulation on Information Obligations concerning Insurance Contracts (VVG-Informationspflichtenverordnung – VVGInfoV). 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 VVGInfoV first of all establishes general information obligations to be fulfilled in all insurance classes (life, health and property/casualty) (cf. section 1 of the VVGInfoV). 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 (cf. section 2 of the VVGInfoV) as well as health insurance (cf. section 3 of the VVGInfoV). If the policyholder is a consumer within the meaning of section 13 of the German Civil Code (Bürgerliches Gesetzbuch – BGB), the insurer is also required 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 (cf. section 4 of the VVGInfoV).

If an insurer breaches its duties as set out in section 7 of the VVG and/or in the provisions of the VVGInfoV, this firstly results in the revocation period defined in section 8 of the VVG commencing only after these duties have been complied with in full; and secondly, the insurer may also be liable to claims for damages subject to section 280 of the BGB. Such claims may notably involve cancellation of the contract.

What advisory duties does the insurer have towards the policyholder upon conclusion of the contract and during its term? Is it always necessary to prepare a record of advice in this connection, and what form does such record have to have?

The duty to provide advice is set out in section 6 of the German Insurance Contract Act (VersicherungsvertragsgesetzVVG). It requires the insurer to advise policyholders prior to conclusion of the contract and to send them written record of the advice provided and the reasons for such advice before the contract is concluded. This is also intended to ensure, in the interest of the policyholders, that the insurance cover offered is optimally oriented on what the policyholder wants and needs.

Overall, optimum advice will be provided in four phases. Firstly, the insurer must question the policyholder with regard to their needs, wishes and personal situation. This forms the basis for the advice to be provided in the second phase regarding the insurance contract to be concluded. In the third phase, the policyholder must be informed of the reasons for the advice provided to them. This is to ensure that the policyholder can once again review whether the insurance product offered meets their personal needs. It should be mentioned in this connection that the scope and reach of these first three phases do not always have to be the same. What instead is decisive is the policyholder’s personal situation as well as the insurance cover they specifically desire. For example, any prior knowledge the policyholder may have or the simplicity of the insurance product may mean that the advice does not have to be as thorough or extensive as in other cases. By contrast, an insurance contract that is not very transparent and which may even provide for exclusions of risks will entail extensive advisory duties even for an experienced policyholder. In the final phase, the entire course of the informational meeting with the customer has to be put into writing in a record of advice and delivered to the policyholder. In this regard it is a matter of controversy whether the record of advice has to be signed. For evidentiary reasons, however, a policyholder should insist on the record of advice being signed by both sides (insurer and policyholder). If the duties to provide advice are culpably breached by the insurer, it has an obligation to pay damages to the policyholder subject to the provisions of section 6 (5) of the VVG.

Section 6 (6) of the VVG provides for exceptions to the insurer’s obligation to provide advice in the case of large risks and for contracts arranged by brokers as well as for distance contracts within the meaning of section 312b of the German Civil Code (Bürgerliches Gesetzbuch – BGB). Under certain conditions, the policyholder may waive their right to advice and documentation by way of separate declaration given in writing (cf. section 6 (3) of the VVG).

During the term of the insurance relationship as well, an insurer has an obligation to provide advice where the need to make inquiry with and advise the policyholder becomes apparent to the insurer (cf. section 6 (4) of the VVG). Such advisory duties notably may arise if a policyholder notifies the insurer of the occurrence of an insured event.

What advisory duties exist towards insureds included under a group insurance contract?

Inclusion under a group insurance contract gives rise to the special situation in which the contractual relationship is not between two persons (insurer, policyholder) but instead between three persons (insurer, policyholder, insured). The insurer and the policyholder have entered into a group insurance contract to cover a certain risk and agree to admit interested parties meeting such risk criteria into the contract as insureds. For example, an insurer and a bank as policyholder conclude a group insurance contract to cover credit default risks in the event that a borrower becomes unemployed and therefore unable to repay the loan as actually provided for by contract. Consequently, the borrower will be included by the bank under the group insurance contract as insured person when the loan is granted. In such a scenario it is a matter of controversy whether the insurer has duties to advise the insured (e.g. regarding the prerequisites for a claim or exclusions of benefits). Judging strictly from the wording of section 6 of the German Insurance Contract Act (Versicherungsvertragsgesetz – VVG), duties to provide advice exist only towards the policyholder – in our example, then, towards the bank but not towards the borrower as insured person. However, this would not necessarily be a sensible outcome, since particularly the borrower as insured person has a special interest in being informed and advised with regard to the scope of insurance cover. Borrowers will want to know when and under what conditions they have insurance cover, i.e. when and under what conditions the insurance company will pay the loan instalments to the bank for them. For this reason the view is taken that an insurer has duties to advise the insured person if that person, from a legal and economic perspective, is the actual contractual partner of the insurer and this is apparent to the insurer. In the present example this is the case if the borrower pays the insurance premium wholly or at least in great part out of their own pocket. In this regard the loan sum is often increased by the amount falling due for the insurance premium.

When insured persons are included under a group insurance contract, it is therefore advisable for them to insist on being advised beforehand and also to be provided with a record of advice in this regard.

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 of the German Insurance Contract Act (Versicherungsvertragsgesetz – VVG) provides that an insurer is required to notify the policyholder in text form, in good time before the policyholder makes his declaration of intent of the contractual provisions including the general terms and conditions of insurance as well as the information prescribed in the Regulation on Information Obligations concerning Insurance Contracts (VVG-Informationspflichtenverordnung – VVGInfoV).

The concept of text form is defined in section 126b of the German Civil Code (Bürgerliches Gesetzbuch – BGB). According to this, a declaration must be given either in a legal instrument or in another manner suitable for permanent reproduction in characters. On this premise, the policyholder as a rule is to be provided with paper documents. However, CD-ROMs, USB sticks or similar devices also satisfy these requirements provided that the insurer has ensured that the policyholder is also able to make such information readable.
Internet websites normally 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.

Note:
Section 7 of the VVG was re-introduced by the reform of the Insurance Contract Act (VVG-Reform) 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.