Germany: Recourse Claims, Insurance and Title to Sue

08 February 2024 by Dr. Sarah Gahlen Partner at LEBUHN & PUCHTA

As easy as things may appear at first sight, a claimant’s title to sue can become a headache in recourse claims in German litigation – and when preparing litigation. The statutory, “automatic” assignment of recourse claims to insurers upon compensation by the underwriters requires a careful assessment of the claimant’s entitlement to bring the claim. Case law of the Federal Supreme Court has certainly not made things easier.

Statutory Transfer of Claims

Title to sue for a recourse claim that has been compensated by insurers is automatically transferred to the underwriters in many civil law jurisdictions. As a matter of German law, section 86 (1) of the Insurance Contract Act (“Versicherungsvertragsgesetz”) provides for an automatic transfer of the claim to the underwriters, in the moment of payment and to the extent that of compensation. This is a full, automatic transfer, by law, of the claim as such, not just a fiction or a procedural right. Therefore, in the absence of any other action taken, it is for the underwriters to pursue the recourse action for the claim, to the extent they have paid out under the policy, and the insured does not have title to sue. Where there has been partial compensation, there is a partial transfer only – the underwriters will have title to sue for the recourse claim to the extent of their payment, whereas the title to sue for any deductibles or uninsured parts of the claim remains with the insured.

Things tend to become complicated where the underlying insurance contracts are not subject to German law. Transfer of claims after compensation by the insurers is a matter which is governed by the law of the insurance contract – so, in order to assess a claimant’s title to sue, the German court must check the entitlement under the applicable foreign law.

Where there is the smallest doubt, or where the underwriters have only partly paid out on a claim, prospective claimants and their insurers are usually well advised to reach a clear contractual agreement, either re-assigning any claims from the underwriters back to the insured, or assigning any claims to deductibles or uncovered parts of the claim to the insurer. It is not at all uncommon in German proceedings, out of caution, to simply assign the entire claim (to the extent that it has not already been assigned), to the insurers and let proceedings be started by them.

The matter is of course crucial where proceedings have to be brought shortly before the end of the limitation period. As a matter of German law, claims have to be started by the party that has a rightful title to sue; a claim brought by the “wrong” claimant will not stop the running of time. 

Assignments – when and how?

The statutory transfer of rights under German law only takes place upon  payment under the policy. This means that the underwriters do not have title to sue as long as they have not yet covered the insured’s claim. Where recourse proceedings are to be started by the underwriters prior to the payment of the main claim, the underwriters and their insured must agree on a contractual assignment of the recourse claim.

Assignments under German law can however also take place by oral agreement (with all the difficulties of showing and proving such an agreement), or even by conduct implying an intent. In this regard, it has been held on various occasions by the German Federal Supreme Court that an assignment of a recourse claim by an insured to his underwriter could be implied from the act of sending documents concerning a damage to the broker or underwriting agent. According to the court, the insured would typically only hand over the documents in order to have the underwriters proceed to the settlement without his further involvement, and would therefore typically want to assign his recourse claim to the underwriters.

It is fair to say that this argument has its roots in a certain desire not to deny title to sue to insurers where payment under the policy is still pending, but it can create many difficulties in practice. Questions arise with regard to the scope of the documents that have to be sent and any declarations accompanying them, and with regard to the scope of the claim that is said to be assigned thereby – typical difficulties of any agreement implied from parties’ mere conduct. Interestingly, many insurers address in their terms and conditions the implied assignment and/or the transfer of title to sue prior to actual payment under the policy, sometimes complicating the title to sue issue – it will never hurt to check twice.