Insurance law: No default in payment without clear instruction by the insurer

*by Johannes Fiala, Lawyer (Munich), MBA Financial Services (Univ.Wales), M.M. (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Banker (
The Federal Supreme Court (BGH) had to decide on a case involving the following facts: The policyholder had been promised provisional cover. The subsequent premium payment for the actual policy was made by way of a broker collection, whereby the initial premium was received late by the insurer after a claim had occurred.
The judgement: With judgement of 26.04.2006 (Az. IV ZR 248/04: click here) the BGH decided that the insurer cannot refer to the exemption from performance according to § 38 II VVG. Therefore, in the present case, the insurer has to compensate about 2 million of property damage caused by a flood. The policyholder was covered by provisional cover until the certificate of insurance was issued.
The court reasoned that the insurer should have informed the policyholder transparently and clearly about the legal consequences of late payment. First of all, the provisional cover is to be seen as a separate insurance contract, which only ends when the final insurance contract comes into effect with the policy or handover of the insurance certificate: § 38 II VVG is deemed to be waived for the provisional cover.
If the insurer does not clearly point out that a late payment of the initial premium affects both the policy and the provisional cover, then the insurer cannot later invoke § 38 II VVG, i.e. exemption from performance. The instruction requirement according to § 39 I 2 VVG applies to both contracts, the provisional cover and the main contract, because the policyholder is equally entitled to protection with regard to both contracts.
No exclusion of benefits without comprehensive and complete information: It is not sufficient, for example, to state that late payment leads to exemption from benefits. For example, it should be pointed out that in the event of a delay through no fault of the policyholder, the policyholder can retain insurance cover by paying the premium in arrears. For reasons of clarity, the insurer’s instructions must also indicate the consequences of late payment for both the provisional cover and the actual main contract. If the information is incomplete or not comprehensive in this sense, the insurer cannot invoke exemption from benefits despite late payment of the premium.

Our office in Munich

You will find our office at Fasolt-Strasse 7 in Munich, very close to Schloss Nymphenburg. Our team consists of highly motivated attorneys who are available for all the needs of our clients. In special cases, our law firm cooperates with selected experts to represent your interests in the best possible way.

About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
»More about Dr. Johannes Fiala

On these pages, Dr. Fiala provides information on current legal and economic topics as well as on current political changes that are of social and/or corporate relevance.

Arrange your personal appointment with us.

Make an appointment / call back service

You are already receiving legal advice and would like a second opinion? In this case please contact Dr. Fiala directly via the following link.

Obtain a second legal opinion

(The first phone call is a free get-to-know-you conversation; without consulting. You will learn what we can do for you & what we need from you in terms of information, documents for a qualified consultation.)