Germany: Legal expenses insurance must inform of invalid clauses

Jul 28, 2021 Benn-Ibler Rechtsanwälte

In its ruling of 31 March 2021, the Federal Supreme Court of Germany (Bundesgerichtshof, BGH) declared a clause of the general terms and conditions of a legal expenses insurer to be invalid, which, for a temporal classification of a legal expenses case, was based on facts that were objected to by the opponent. In addition, the BGH imposes an obligation on the insurer to inform the policyholder if the clauses are invalid.

According to the BGH, only the facts presented by the policyholder may be decisive for determining the insured event. A clause that makes the insurance case dependent on a violation also dependent on an opponent's assertion of facts unreasonably disadvantages the policyholder contrary to good faith. It is invalid pursuant to Sec. 307 (1) (1) of the German Civil Code (Bürgerliches Gesetzbuch, BGB).

Otherwise, there would be a risk that a refusal of benefits by the insurer would be based on the allegations of the opposing party. However, this is incompatible with the purpose of the contract of legal expenses insurance, which is precisely to support the policyholder in protecting his or her own interests as best as possible.

Particular attention should be paid to the insurer's obligation to inform. If a clause in the general terms and conditions of a legal protection insurer is invalid, the insurer has an obligation to inform the affected policyholder about the invalidity. This is because, according to the BGH, the use of a clause that violates Sec. 307 BGB and is thus invalid is at the same time a violation of a market conduct regulation pursuant to Sec. 3a of the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb, UWG). The obligation to eliminate the unlawful act according to Sec. 3a UWG results from Sec. 8 (1) UWG and can be fulfilled by informing the insured person.

BGH, IV ZR 221/19 (31.03.2021)