When Can Legal Expenses Insurance Refuse Coverage?

Sept 29, 2023 Benn-Ibler Rechtsanwälte

The likelihood of success of the intended claim determines whether legal expenses cover will be granted. Coverage cannot be refused if the legal action has a reasonable prospect of success.

In the coverage proceedings, the plaintiff sought coverage under her legal expenses insurance policy for a liability action that she was seeking to bring.

At the end of 2011, the plaintiff had provided a guarantee for a loan that had been taken out by her ex-husband. Following his death, she was required to repay the remaining loan and suffered damages totalling EUR 143 570. The plaintiff considered that the defendants had coerced her ex-husband into continuing to embezzle client funds instead of filing for bankruptcy in April 2012, as he had intended to do. The plaintiff claimed that the defendants should be held liable, as they had caused the damage as a result of the coercion.

The insurance relationship was based on the Austrian General Conditions for Legal Protection Insurance 2002 (Allgemeinen Bedingungen für die Rechtsschutz-Versicherung). These read in part:

‘If [the insurer], having examined the facts of the case and having regard to the legal and evidential situation, concludes [...] that experience has shown that there’s no prospect of success, the insurer is entitled to refuse to pay the costs in their entirety. [...]’

The Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH) examined whether legal protection could be refused. A legal dispute is ‘manifestly hopeless’ if it can be recognised as unsuccessful without closer examination of the means of attack or defence. This is particularly true in the case of inconclusiveness. The claim is inconclusive if the plaintiff’s factual claim cannot be derived from the factual allegations.

The OGH denied a causal connection between the defendant’s conduct in the intended liability action and the plaintiff’s acceptance of liability and the resulting damage. Coercion occurred in 2012, but the guarantee was issued at the end of 2011.

Due to the inconclusive facts presented by the plaintiff, the claim does not have a sufficient chance of success, and the insurer is entitled to deny coverage.

OGH 7 Ob 56/23w (28 June 2023)